Death of a Member: Lord Chilver
	 — 
	Announcement

Baroness D'Souza: My Lords, I regret to inform the House of the death of the noble Lord, Lord Chilver, on 8 July. On behalf of the House, I extend our condolences to the noble Lord's family and friends.

Flooding: Insurance
	 — 
	Question

Lord Dubs: To ask Her Majesty's Government what discussions they have had with insurance companies to ensure that affordable flood insurance is available for householders in areas considered to be at risk.

Lord De Mauley: My Lords, Ministers have met with a range of representatives from the insurance industry, including the Association of British Insurers. Together, we are looking to deliver a new approach that genuinely addresses the availability of flood insurance as well as securing its affordability for the first time. A number of options are being considered that would allow policyholders in high flood-risk areas to continue to secure affordable insurance without having an impact on bills more generally.

Lord Dubs: My Lords, the Minister's statement is welcome but is he aware that, given that thousands of homes have been devastated by floods in recent years, at present some insurance companies are imposing swingeing increases on premiums in order to deter householders, some of whom have to go to other companies that then bear all the risk? The insurance industry needs to put its house in order. Will the Minister take all that into account in his negotiations with the industry?

Lord De Mauley: Yes, my Lords. Although this is not exactly a declaration of interest I ought to say that my former home was flooded in 2007, so I have been through the process of claiming on the insurance. We recognise that the price of insurance is rising in areas of flood risk and has the potential to become unaffordable for some. This is precisely why the Government, working closely with the industry, are considering an internal industry levy which would allow policyholders in high flood-risk areas to secure affordable insurance without having an impact on bills more generally.

Baroness Knight of Collingtree: My Lords, will my noble friend the Minister bear in mind when dealing with this matter not just the terrible inconvenience of having one's house flooded but the fact that no mortgage can be obtained if insurance is not available? It therefore becomes almost impossible to sell one's house if the deal does not go through.

Lord De Mauley: My Lords, that is a very important point. We recognise that there are concerns over the continued ability of existing and prospective mortgage-holders to find affordable insurance. We are working with those involved to get a better understanding of what the impact on the mortgage market would be of increased premiums and how lenders would choose to react.

Lord Gordon of Strathblane: My Lords, surely the answer is to ensure that planning permission is not given for building on the flood plain unless the developer takes precautionary measures to ensure that the area cannot be flooded in future?

Lord De Mauley: My Lords, that is also an important point, which the Government are fully apprised of.

Lord Greaves: My Lords, the affordability of insurance depends partly on the flood risk. I commend the Government and the insurance industry for all the work that they are doing to find an internal solution within the industry to this, but it also depends on how much money the householder has and their resources. Last December, the excellent report published as the road map states:
	"The Government will look at further ways to encourage take up of insurance by low-income households, including the potential of insurance-with-rent schemes for social housing".
	Are the Government taking this forward seriously, as it is one answer to the problem? Do the Government understand that the people really in difficulty when it comes to insurance are often those in privately rented accommodation? Can insurance-with-rent schemes be promoted within that sector?

Lord De Mauley: Once again, my Lords, yes is the answer to my noble friend.

Lord Campbell-Savours: My Lords, it is not just a question of the availability of insurance. Just as important is the question of excess. Will that very important component be on the agenda?

Lord De Mauley: My Lords, I have first-hand experience of that very point. I think that in a number of cases, premiums have been held relatively steady but the excesses have been put up. The noble Lord is absolutely right.

Lord Elton: My Lords, I understand that the environment department has a complete set of maps of flood risk areas. Will my noble friend suggest that the Secretary of State should call in all planning applications that fall within those areas?

Lord De Mauley: I will certainly pass that suggestion on.

Lord Knight of Weymouth: My Lords, a week last Saturday the River Wey rose and chose to flow through the ground floor of my house. I now know the scale of difficulty that this is causing thousands of householders around the country. I take this opportunity to thank not only neighbours but staff in the Environment Agency and the insurance industry for their support. These people tell me in conversations that we will be lucky to end the summer with ground water at anything other than normal winter levels. Is it not therefore urgent that before Defra Ministers go on holiday, they must conclude a deal with insurers to incentivise householders to invest in flood resilience for householders' homes to be insurable and for their premiums to be affordable?

Lord De Mauley: My Lords, there is a lot in that question. I agree with the general thrust of what the noble Lord has said. Like him, I pay tribute to the Environment Agency staff who have worked tirelessly for 24 hours a day through the recent floods, the front-line emergency services, the Flood Forecasting Centre staff and the local authorities, all of whom have been working extremely hard.

The Duke of Montrose: My Lords, does my noble friend the Minister have a scheme whereby if a levy is imposed on the industry, it can be got to agree to absorb the cost of this? Will it not otherwise be passed on to the rest of the householders?

Lord De Mauley: My Lords, although it is early days in the negotiations, there are certainly a number of options as to which route could be followed. What my noble friend says is a very valid point and will certainly be taken into account.

Lord Dubs: My Lords, perhaps I may feed in one further point for the negotiations. Does the Minister agree that postcodes in the country often cover very large areas, encompassing both high-risk and low-risk properties? Does he further agree that it would be better if the insurance industry used Environment Agency maps to identify the risk for more specific locations?

Lord De Mauley: My Lords, I am very grateful for that point, which I will certainly take back.

Economy: Growth
	 — 
	Question

Lord Roberts of Conwy: To ask Her Majesty's Government what steps they are taking to encourage demand to promote growth in the United Kingdom economy.

Lord De Mauley: My Lords, the Government have set out a comprehensive strategy to deal with the challenges we face. Fiscal, monetary, financial, tax and structural reform all play a role to deliver our objective of lasting economic recovery and sustainable public finances. That strategy has reduced the deficit and helped to deliver near record low interest rates.

Lord Roberts of Conwy: I am grateful to my noble friend for that reply. I am sure that the entire House would like to welcome the 65,000 fall in unemployment, which was announced today. Welcome as that news is, we must face the fact that demand for goods and services is slackening, if not falling, worldwide. It is reducing growth prospects in many countries, including our own. Does my noble friend agree that in these circumstances the best that we can do is concentrate on those sectors of industry that have full order books, especially of exports, and on the key areas of housing and infrastructure at home where we can be sure of a return in the longer term? Can we get on with it as soon as possible?

Lord De Mauley: I agree with my noble friend: each of these is vital and we are taking important steps in these areas of exports, housing and infrastructure. However, our strategy goes further. What we need to do is encourage the private sector through a competitive tax system; make the UK the best place to start, finance and grow a business; encourage investment in infrastructure; and improve the flexibility and skills of our workforce. As my noble friend will be aware, we have put in place a range of measures to achieve each of these.

Lord Barnett: Despite the excellent news that the noble Lord is pleased to give, would he agree that growth at the moment is near zero? Although increases in capital expenditure would be excellent, especially under some kind of loan guarantee scheme that was announced outside the House this morning, can he tell us more about that loan guarantee scheme? How will it work in practice? Will the Government be guaranteeing 100% of project?

Lord De Mauley: I cannot give the noble Lord the details that he asks for here because it would take too long, but I will write to him.

Lord Clement-Jones: My Lords, we all want to see a strong business and growth strategy legacy from the Olympics, particularly looking beyond the next few weeks, and we want to sell our capabilities internationally. However, does not the insistence by the IOC that some 75,000 of our businesses cannot associate themselves as having been suppliers to the Olympics rather militate against that?

Lord De Mauley: My Lords, my noble friend raised this point in a debate the other day. The building of the Olympic park and other Games venues for London 2012 has been a great success story for the UK. In order to secure over £1 billion of sponsorship, restrictions on marketing rights have had to be put in place. The many thousands of suppliers for both the build and the staging of the Games have received a full commercial rate for their goods and services. However, the Government are committed to working with the British Olympic Association and others, and through them the IOC, to find a way to ensure that contractors and subcontractors can seek a form of recognition of their superb contribution to the Games.

Lord Foulkes of Cumnock: My Lords-

Lord Tomlinson: My Lords, does the Minister accept that the nub of the Question asked by the noble Lord, Lord Roberts, was about how to encourage demand and promote growth, and that those questions were the very ones that he did not really address in his reply? Would he take note that there is serious concern, not only on both sides of this House but in the country, about the failure to do those two things and that that is manifested in today's Ipsos MORI poll, which shows Labour on 44%, the highest since the last general election, with the Government-the Conservatives -slumping to 31%?

Lord De Mauley: I congratulate the noble Lord on his performance; we are more focused on the economy. Of course growth is of concern but unemployment is falling. In the three months to May, the number of unemployed fell by 65,000 and 181,000 new jobs were created. Since the coalition took office in May 2010, more than 840,000 private sector jobs have been created, manufacturing output is up and exports of goods to outside the EU are up by 35% quarter on quarter from the first quarter of 2010 to 2012. Noble Lords will also know that inflation has fallen.

Lord Forsyth of Drumlean: Does my noble friend agree that we will only get growth from businesses being able to sell goods and services competitively throughout the globe? Would it be a good idea for the Secretary of State, Mr Cable, to spend his Summer Recess thinking of ways in which he can reduce the cost of doing business for our firms throughout the country? That, not demand, is the key to getting further employment and further tax revenues for the Treasury.

Lord De Mauley: My Lords, my right honourable friend the Secretary of State for Business thinks of little else.

Lord Soley: My Lords-

Lord Foulkes of Cumnock: My Lords-

Lord Soley: Given that the IMF has downgraded our growth forecast from 0.8% to 0.2%-the lowest for any major economic power-will the Minister give his very full support to the Chancellor of the Exchequer, who would like to allow more private sector investment, specifically for the expansion of Heathrow? Will the Minister confirm his support for the Chancellor on that issue?

Lord De Mauley: My Lords, my support for the Chancellor of the Exchequer is unstinting. On the subject of the IMF forecast that the noble Lord raised, I point out that the forecast for the eurozone, where 40% of our exports go, is a contraction of 0.3%. It is of course concerning but hardly surprising that our forecast has been affected, so it is all the more impressive that the private sector jobs figures that I referred to earlier have outstripped so substantially the job losses in the public sector. Furthermore, as I said, manufacturing output is up, and exports to countries outside the EU are substantially up. All that must be good news, as is the news on inflation, which is good for both businesses and families. The director of the IMF's fiscal affairs department said, following the announcement, that we should not change course on deficit reduction.

Lord Bates: My Lords, is my noble friend aware that the north-east of England is the only region of the country that exports more than it imports? Is he further aware that figures for the past quarter show that those exports are now at record levels? Is he further aware that today unemployment in the north-east fell for the first time in two quarters? Does he recognise that this is a welcome progression, and will he ensure that the Government continue to make sure that they back winners rather than pick winners?

Lord De Mauley: Yes, my Lords, I agree with my noble friend. The issue is one of confidence. I will tell noble Lords who else thinks that we are doing the right thing. Last month BMW announced a £250 million investment to increase production of Minis, on top of the £500 million investment it announced last June. Ford is putting £1.5 billion into R and D and manufacturing over the next five years. Nissan is building the electric Leaf car, with an associated battery factory, in Sunderland. Toyota is producing Europe's first mass-produced fully hybrid car and engine in the UK.

Schools: Children in Care
	 — 
	Question

Lord Lexden: To ask Her Majesty's Government whether they have plans to enable more children in care to secure places at boarding schools in both the maintained and independent sectors.

Lord Hill of Oareford: My Lords, we believe that in the right circumstances, boarding school can be a very good option for children in care and vulnerable children. Last month saw the launch of the Assisted Boarding Network by RNCF and Buttle UK, and also the National Foundation for Boarding Bursaries, which involves independent and maintained boarding schools. Both schemes aim to increase access to boarding for vulnerable and disadvantaged children. We very much support both initiatives and would urge local authorities to consider boarding as an option.

Lord Lexden: I am extremely grateful to my noble friend, with whom I have worked on educational issues in the past, for that reply-particularly as regards the new National Foundation for Boarding Bursaries and the Assisted Boarding Network. Will my noble friend confirm that the state spends annually more than £37,000 on each looked-after child, while the average cost of a private boarding school place is now some £24,000, and that assisted boarders achieve significantly better examination results than look-after children? While, as my noble friend said, boarding education will not be suitable for all children in care, is it not extremely heartening that the Assisted Boarding Network, backed by highly successful charitable organisations, is planning a significant increase in numbers over the years ahead? It is sad that some local authorities have in recent decades been firm opponents of assisted boarding. The noble Lord, Lord Adonis, who has been so determined a proponent of it, recently called for an end to what he called outdated thinking.

Noble Lords: Question!

Lord Lexden: Will the Government give local authorities their full support to assist the progress of what the Princess Royal recently described as a really key partnership?

Lord Hill of Oareford: Yes, my Lords, we would certainly encourage all local authorities to think carefully about boarding as an option. Local authorities such as Norfolk are already doing it, and others are as well. As I said, boarding schools can play a role-I agree with my noble friend. I am grateful for the initiatives taken by RNCF/Buttle and by the independent and maintained schools.

The Earl of Listowel: My Lords, can the Minister give an indicative figure on the number of children in care, and the number of children on the edge of care, who are currently benefitting from this policy each year? Have the Government commissioned research into this area? I detect considerable interest among my Cross-Bench colleagues on the subject. Will the Minister consider a briefing for interested Members of the Lords and of the Commons on this interesting policy?

Lord Hill of Oareford: I would very much welcome further discussion with the noble Earl and any other Members of this House who are interested. I think that there is interest across the House in the potential of this initiative. As my noble friend mentioned, the noble Lord, Lord Adonis, was very keen on trying to make progress in this area, and the previous Government did some interesting trials. The numbers are currently very low but I think that, properly handled, there should be potential for the numbers to increase. The two initiatives which I have talked to perhaps have the potential to go up to, say, 1,000 places. That might involve children at the edge of care, in care or otherwise disadvantaged. However, I would very much welcome the chance to discuss it further with the noble Earl and anyone else who is interested.

Baroness Walmsley: My Lords, in 2008, under the previous Government, we had the Boarding School Provision for Vulnerable Children pathfinder. Since we should be in favour of evidence-based policy, can my noble friend tell me whether that pathfinder has been evaluated, what the results were and whether the Government will take action along those lines?

Lord Hill of Oareford: As I was saying, the numbers involved in the pathfinder under the previous Government were small-I think that only 76 children were considered for places, 17 of whom were placed; and of those, 11 stayed the course. So, the number was small. However, I do not think that that is a reason for us not to explore this further as a possibility, taking into account the fact that it clearly will not be the right option for everyone and that we should consider the interests of the child first and not look for a single solution.

Lord Elystan-Morgan: Does the Minister accept that, in general, the tale of children who have been in care is a gloomy and miserable one; that they are overrepresented in all the categories of failure and underrepresented in the categories of achievement; that the public school scheme seems to reverse that trend completely; and that, therefore, it deserves the most practical and committed support on the part of government?

Lord Hill of Oareford: I agree with both parts of the noble Lord's point. It is a gloomy tale, and therefore it is incumbent on us to look at everything that can make a contribution to making it better.

Baroness Jones of Whitchurch: My Lords, does the Minister agree that although, as has been said, boarding schools may be the answer for the minority of pupils in care, the much bigger challenge is to address the disproportionate number of children in care who attend failing schools? What action are the Government prepared to take to ensure that these children are given greater access to schools rated as outstanding by Ofsted?

Lord Hill of Oareford: I agree with the noble Baroness's basic point-that the contribution that independent or maintained boarding schools are likely to make will, proportionately, be a relatively modest one; and that, therefore, the Government's reforms to try to improve educational performance will play an important part. It is the case that looked-after children, obviously, have priority for admissions, and that includes admission to the kinds of schools the noble Baroness described. I hope that other initiatives that we are taking-such as bursary support after the age of 16, the pupil premium and so on-will help. However, the key challenge for us in all schools is to raise those standards, bearing in mind that we need to focus on the particular group she described and shine a spotlight on their educational achievement and the gaps that there are.

Lord Eden of Winton: My Lords, on a more general point, does my noble friend agree that there are considerable educational advantages and benefits that come from the closest possible working relationship between the maintained and the independent sectors? To that end, will he do all that he can in discussions with interested parties on both sides and with teachers' union to ensure that such developments flourish?

Lord Hill of Oareford: My noble friend makes an extremely good point. The more that we can encourage the independent and the maintained sectors to work together and learn from each other, the better it will be. I am certainly keen to do everything that I can to take that forward.

Baroness Farrington of Ribbleton: My Lords, can the Minister tell us how many of the places identified in the independent sector are allocated according to ability and entrance criteria and how many are awarded on the basis of need alone?

Lord Hill of Oareford: I do not have detailed information on all the schemes that are currently running. The new scheme that I was talking about is being run by the independent schools and the maintained schools together. They are expressly clear that selection and attainment are not part of what they want to do. They want to make it available to disadvantaged children of all abilities.

Railways: Electrification
	 — 
	Question

Baroness Seccombe: To ask Her Majesty's Government what will be the economic and environmental benefits of the electrification of English and Welsh railways.

Earl Attlee: My Lords, electrification is expected to lead to a number of benefits, including higher acceleration and higher top speeds than diesel stock, greater capacity, and lower costs of leasing, maintenance and operation. These savings can lead to reductions in the long-term cost of the rail industry. Electric trains are more environmentally friendly than diesel trains and electrification should make rail freight more competitive with road, reducing environmental damage and congestion.

Baroness Seccombe: My Lords, I thank my noble friend for that Answer. I welcome the Statement on the electrification of the east Midlands and other lines most enthusiastically along with the upgrades to mainline stations and extensions to platforms. As the Prime Minister said,
	"this investment will mean faster journeys, more seats ... greater ... links and a truly world class rail network".
	Does my noble friend agree with me that the specification for any future project should ensure that it is for the benefit of the many and not the few?

Earl Attlee: My Lords, my noble friend is quite ingenious. I have a feeling that she really wants to talk about HS2. I absolutely agree with her that future projects should be for the benefit of the many and not the few. However, HS2 is not predicated on a very high-cost service for senior businessmen paid for by everyone-a sort of Concorde on tracks. HS2 passenger demand forecasting is based on the current fare structure. It is also essential to understand that the west coast main line will run out of capacity if we do nothing. It is only a matter of time.

Lord Wigley: My Lords, will the noble Earl accept my very great appreciation of the electrification of the line through to Swansea and the south Wales valley lines? However, will he accept, in the context of the reply that he has just given, that the line from Crewe to Chester and Holyhead also has very heavy needs, particularly the need to offload freight going through to Ireland? Can he give an assurance that the recent announcement does not preclude progress on that line also?

Earl Attlee: My Lords, the CP5 is not the end of the electrification process. We have announced what we will do in terms of electrification for CP5, but the process will go on.

Lord Bradshaw: The announcement this week means that more than 800 miles of electrification are now likely. That is good news for consultants, good news for planners and good news for those seeking apprenticeships. Would the Minister care to speculate on what would have been done by the party opposite?

Earl Attlee: My Lords, I would hope that the party opposite, if in power, would have carried on with the process of giving us a railway system that is fit for the people of the United Kingdom

Lord Davies of Oldham: My Lords, the "party opposite", of course, produced the plans and had commitments for half the money which is to be expended on these proposals by this Government, expenditure which did not take place immediately after the election because the Government themselves induced the delay. Of course, we welcome the Government's intention to make progress on electrification. Although the noble Lord referred in glowing terms to the HS2 project, we also note that there is no commitment in these proposals to the expenditure for HS2 and we wonder whether in fact the Government are running a little scared of their Back-Benchers, as they have been recently in the other House.

Earl Attlee: My Lords, I can assure noble Lords that the Government are not running scared of their Back-Benchers in respect of HS2. I would also remind the noble Lord that we are currently in CP4, which was devised by the previous Administration. The announcement is for CP5.

Lord Anderson of Swansea: My Lords, in the spirit of good will just before the Recess, may I say that the Government deserve full-hearted congratulations on the decision to extend electrification to Swansea and to the valleys? Does the Minister recognise that one of the major problems in Wales is the widening gap between the relative prosperity of south-east Wales and that of west Wales and the valleys? This decision will go at least some way to contribute to a non-extension of that widening gap.

Earl Attlee: My Lords, I agree with the noble Lord. That is exactly why we have done it. I would also like to pay tribute to the efforts of the noble Lord, Lord Touhig, who skilfully put pressure on the Government in respect of the Ebbw Vale electrification project.

Lord Shutt of Greetland: My Lords, I commend the Government on pursuing these electrification schemes but it is quite clear that there are plenty of further candidates, whether they be Holyhead, Plymouth, Hull, or indeed the Calder Valley. Is the Minister saying that he now sees a rolling programme going forward for electrification? That is what we want to see. We have had bust, and it seems that we have got a bit of boom, but is it going to be rolling forward?

Earl Attlee: My Lords, we want to avoid feast and famine for the civil engineering industry. We are saying now what we will do for CP5. I have already indicated to the noble Lord, Lord Wigley, that we will continue the process in CP6, but of course I cannot at this point make any suggestion as to what will happen in CP6.

Littering from Vehicles Bill [HL]
	 — 
	First Reading

A Bill to make provision for a civil penalty for littering from vehicles and to require local authorities to publish details of contracts relating to litter clearance.
	The Bill was introduced by Lord Marlesford, read a first time and ordered to be printed.

Safeguarding Vulnerable Groups Act 2006 (Controlled Activity and Prescribed Criteria) Regulations 2012

Safeguarding Vulnerable Groups (Miscellaneous Amendments) Order 2012

Police and Crime Commissioner Elections (Functions of Returning Officers) Regulations 2012

Police and Crime Commissioner Elections Order 2012

Police and Crime Panels (Modification of Functions) Regulations 2012
	 — 
	Motions to Approve

Moved By Lord Henley
	That the draft regulations and orders laid before the House on 14 and 15 May and on 11 June be approved.
	Relevant documents: 2nd and 3rd Reports from the Joint Committee on Statutory Instruments,3rd Report from the Secondary Legislation Scrutiny Committee, considered in Grand Committee on 13 June and 12 July.
	Motions agreed.

Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2012
	 — 
	Motion to Approve

Moved By Lord Sassoon
	That the draft order laid before the House on 14 June be approved.
	Relevant document: 4th Report from the Joint Committee on Statutory Instruments,considered in Grand Committee on 17 July.
	Motion agreed.

Business

Baroness Royall of Blaisdon: My Lords, forgive me. Noble Lords may recall that yesterday I asked the noble Lord the Leader of the House to ensure that while Parliament was sitting, Statements were announced to Parliament and not to the media. Lo and behold, I woke up this morning to hear on the BBC an announcement about the £40 billion loan guarantee scheme. I have no comments about the scheme, which I am sure is perfectly reasonable, but if this is a new announcement of new money being made available, it should have been made to Parliament. If it is not new money, then the Government should tell us that it is recycled money. In any case, on the day on which an announcement was made, the Minister standing at the Dispatch Box should have been able to give an answer to my noble friend Lord Barnett when he asked about it.

Baroness Anelay of St Johns: My Lords, it is unfortunate that the noble Baroness, Lady Royall, did not give us advance notice of this. She might have asked a question when my noble friend Lord Sassoon moved his Motion. We do not have business questions in this House as yet. I know my noble friend Lord Sassoon could have made a comment at that time. I am aware that he has put down a written Ministerial Statement on this matter. I am also aware that the noble Baroness was able to meet with the Leader of the House yesterday to discuss this matter. I suggest that those discussions continue.

Lord Foulkes of Cumnock: My Lords, another point arises from that. Although the noble Lord, Lord De Mauley, answered the first two Questions immaculately, he is only a Whip and not a departmental Minister. When these detailed Questions arise, sometimes the Whips do not seem to be able to answer them.
	On the second Question in particular, where was the Minister of State for BIS-the Scarlet Pimpernel of the House of Lords? Why do we never see the noble Lord, Lord Green of Hurstpierpoint? Why does he not come to answer Questions? Why is he not here? He could have answered that Question properly and substantially from the Dispatch Box, but he is not here today. Is it because he is so embarrassed that he was executive chairman of HSBC during the banking scandal?

Financial Services Bill
	 — 
	Committee (4th Day) (Continued)

Clause 5 : The new Regulators
	Amendment 104ZB
	 Moved by Baroness Hayter of Kentish Town
	104ZB: Clause 5, page 16, line 7, at end insert-
	"( ) As part of the FCA's consumer protection and integrity objectives, the FCA will raise standards of professionalism in financial services by mandating a training and competence regime which must-
	(a) apply to all approved persons exercising controlled functions, regardless of financial sector,
	(b) specify minimum thresholds of competence including integrity, and professional qualifications, continuous professional development and adherence to a recognised code of conduct,
	(c) be evidenced by individuals holding an annual validation of competence."

Baroness Hayter of Kentish Town: My Lords, I am impressed that I will be standing opposite an immaculate Whip, which I am sure will make for a good day's work on the Bill.
	The amendments in the first group-

Baroness Anelay of St Johns: My Lords, I hesitate to interrupt the noble Baroness who is carefully moving her amendment, but I remind noble Lords that a substantial number of Peers wish to take part in the Committee stage of the Bill. Will noble Lords please leave the Chamber a little more quietly so that we can hear the noble Baroness?

Baroness Hayter of Kentish Town: I thank the noble Baroness for that assistance.
	The amendments would raise the standards of professionalism in the financial industry; partly by adding professional standards to the definition of integrity, partly by introducing a code of conduct and partly by mandating a training and competence regime. That is only what other professions expect: training, a code, a qualification, CPD and proof of competence.
	Part of the reason that we trust lawyers and doctors, architects and surveyors, is that they meet these requirements with proof of competence. That is why we trust them with our wills, our conveyancing, our divorces and our lives. A code of conduct enables us to know what is expected of them in terms of behaviour, ethics and integrity, as well as in particular skills and standards.
	Let me quote from just one such code-that for solicitors. It reads:
	"You must: ...act with integrity ....act in the best interests of each client ... provide a proper standard of service to your clients"-
	-although, having checked lots of codes of conduct, I find that surveyors have to,
	"always provide a high standard of service",
	so perhaps we could have some trading up there.
	So you have to act in the best interests of clients, provide a good standard of service to your clients and not behave in a way that is likely to diminish the trust that the public places in you or the profession. If only bankers and the rest of the industry had signed up to that and it had been enforced by their professional body or regulator. Sadly, we have learnt the hard way that the culture and behavioural traits of those working in the financial services sector have not been sufficient with regard to professionalism, integrity and competence.
	It is not just me. Hector Sants argued in 2010 that some of the causes of the financial crisis were deeply rooted in the behaviour and culture which resulted in bad actions and decisions. Recent scandals, whether PPI, LIBOR, interest rate swaps, or endowment mortgages, should ensure that we make the Bill require the FCA to get the sector to improve standards of ethics, culture and behaviour. Redress and penalties are not sufficient, for the mischief is already done. While we endorse the amendment in the name of the noble Baroness, Lady Kramer, and the noble Lord, Lord Sharkey, I ask them why, when we had the opportunity of an independent review into the causes of all this mayhem and therefore the opportunity to draw broader lessons about the causes and the means to avert future misbehaviour, they failed to support us in the Lobbies. Their intervention on LIBOR in this amendment, simply to ensure that the penalty falls on the right half of the bank, although welcome, seems, I have to say, a rather timid response to a major scandal. We wish the noble Baroness well on the Joint Committee and we hope that her inquiring mind will fall on the wider issues covered in this group, which I trust she will also support today.
	We know that the higher a practitioner's commitment to professional standards, the lower is the likelihood of consumer harm and the higher is consumer trust and confidence. This is the case for the whole industry, not just the retail sector. As the Chartered Institute of Securities and Investments has said:
	"It cannot be tenable ... for the wholesale sector to have significantly lower standards than the retail market in terms of qualifications, CPD and ethics".
	The Minister may say that the varied nature of financial services and different needs of customers means that it is very hard to have a single qualification, but that is the case for doctors and lawyers. An ILEX member does not have the same qualification as a specialist family court QC, nor a GP the same as a cancer surgeon, but that does not mean that there cannot be mandatory qualifications for all, appropriate to their responsibilities. Qualifications can easily keep pace with the complexity of financial services to adapt to the changing nature of consumers, of products and of the external environment. If we are to restore trust and confidence we must upskill the workforce, the profession, both in technical standards and in ethics. We need a new code of conduct for bankers.
	Stewardship banking relies on the idea that banking is a trusted profession, not a fly-by-night activity. If we are serious about banking regaining the status of teaching, medicine and law, we must act. Those professions have a code of conduct that lays down what is expected of people. We need the same for banking. Anyone who breaks the rules should be struck off, whether for manipulating markets or gaming indices, or deliberate mis-selling. People should not be able to work in banking again if they mis-sell a product. Confidence will not return until we strike off those whose conduct lets us down.
	The second amendment in this group, in my name and that of my noble friend Lord Eatwell, is driven by the same belief: that professional standards are key to good behaviour in a sector that displayed a notable lack of integrity, standards and ethics. We cannot simply hope for change, we must work for change. This amendment would add professional standards to the definition of integrity and therefore to the FCA's operational objectives. It would force supervisors to examine the extent to which firms have demonstrated their commitment to such standards, making them a core part of the FCA's work and remit.
	As long ago as 2002 Howard Davies, then the FSA chairman, admitted that despite the FSA's principles being based on ethical values, it was,
	"not clear that this ethos is fully understood or applied consistently by everyone working in the industry".
	Amendment 110ZB attempts to make amends for this oversight. Professional standards need to be embedded in a firm's ethos and this must be supervised by the regulator. Left to themselves, too many firms simply do not pass muster. We need to enhance the integrity of our financial services sector in order to ensure good consumer outcomes and drive up standards. The FCA must send clear signals to the firms it regulates about the behaviours it expects and the professionalism that must be evidenced. These amendments are part of enabling that to happen. I beg to move.

Baroness Kramer: My Lords, I shall speak to Amendment 110ZC, which stands in this group in my name and that of my noble friend Lord Sharkey. I thank the noble Baroness, Lady Hayter, for her kind words. This amendment illustrates why I and, I suspect, this House and the other place had a preference for a parliamentary committee, which will report by the end of the year, over a judicial committee which will report in a couple of years, because the issue addressed in it would certainly have been resolved one way or the other by that point and, I suspect, with damaging effect. I hope that the Government will respond to the amendment by telling me that it is completely unnecessary, but it arises out of deep concern following various newspaper reports that have discussed the size of the liability that may fall on the banks involved in LIBOR manipulation. We are talking not just about the fines that come from the regulators-they are significant but small in the way of things for banks-but about the liabilities that may arise from the various actions that are now under way and others which I am sure will join them.
	As the Committee will know, two cases are already under way in the United States. One is in the Southern District of New York, which is a class action lawsuit titled "In re LIBOR-Based Financial Instruments Antitrust Litigation"-the use of "antitrust" obviously has significant consequences-and the second is in the northern California district court, filed by Charles Schwab against a series of banks, including a number of UK banks. Charles Schwab claims in its complaint that "significant harm" has resulted from the mispricing of,
	"tens of billions of dollars in LIBOR-based instruments".
	Its complaint outlines the methodology of comparing the banks' LIBOR quotes with some market-based yields and CDS spreads. Some excellent work done by the securities analyst Cenkos estimates that the LIBOR quotes were understated by 30 to 40 basis points in some cases. Cenkos does a simple calculation to show that if LIBOR had been mis-stated by even five basis points over four years, on £1 trillion-worth of notional contracts, the damages would be £2 billion. We are therefore looking at multiples of billions of potential charges.
	It struck us as we were looking at this and reading some of the stories about Barclays considering separating the bank into an investment bank and a retail bank-that is the direction in which we are going in this country through ring-fencing, and I am very much in favour of it-that there might be scope for organisations to decide that those liabilities generated by LIBOR manipulation could happily be sited in the retail part of banks rather than the investment part. I am afraid that that view comes with some cynicism, as many of us now would not put anything beyond the decision-making powers of some bank boards and directors.
	We are seeking from the Government some stern comments to the effect that we have got this entirely wrong and that safeguards are in place. If it is not the case, we hope that someone will quickly pay attention, because the decisions that could set this process in train could happen fairly quickly. I think that every one of us here and the public at large would be shattered if that was the conclusion to this aspect of the scandal. This is in no way meant to be a comprehensive response to the amendments; it is one particular issue that struck us as being in need of immediate comment.

Lord Peston: My Lords, I listened with enormous interest to the noble Baroness, Lady Kramer, and am sympathetic to what she said, but I cannot see how the amendment fits into this section of the Bill. If I have read it correctly, new Section 1D(2)(b) states that the integrity of the financial system includes,
	"its not being used for a purpose connected with financial crime".
	As I understand it, these people have engaged in financial crime and been fined for it already. If the noble Lord, Lord Carlile, is to be believed, they will be brought before the courts to be examined some more. What unfair allocation does the noble Baroness have in mind? If some American investors have lost a great deal of money as a result of criminal activities by people connected with British banks, it would not be unfair if those banks had to meet the cost of those criminal claims. Is she saying that that would be unfair, or have I totally misunderstood the purpose of the amendment? It is most likely to be the latter.

Baroness Kramer: I would hesitate ever to say that the noble Lord, Lord Peston, had misunderstood any issue. Perhaps I can clarify. This is a probing amendment, and I cannot pretend that it is drafted with skill or placed in the Bill where, ultimately, a sophisticated legal mind- or, perhaps, the noble Lord-would put it. We felt that it was an issue that needed to be raised promptly. I fully accept that if courts decide that there is liability, that liability will be met, but if the institutions are dividing themselves into separate pieces and there is flexibility on where the liability is then allocated-into a retail entity or the investment banking entity-that is of acute interest.

Lord Peston: This sounds a bit like tax avoidance in a new version. If they separate the institution into two parts, they will then claim that there is a part that is not guilty. Is that the point of the amendment?

Baroness Kramer: I think that this is an issue that I will hand off to the Minister.

Lord Davies of Stamford: My Lords, I want to intervene briefly on two amendments. One is that moved by my noble friend, Amendment 104ZB. I congratulate her on it and draw particular attention to paragraph (c), which is enormously important. Paragraphs (a) and (b) stand by themselves and no one will want to argue with them, but I particularly congratulate my noble friend on paragraph (c), which deals with the need to ensure that all those involved in managing money or advising retail investors should keep abreast with changes in financial markets, which, as we all know, have been great in the past 10 or 20 years, and in financial products.
	The range of financial products available is enormously confusing. Inevitably, it totally confused retail investors. It is enormously important that IFAs are kept abreast of developments so that they can give good advice to their clients. Among the complex and dangerous instruments that have emerged have been all sorts of derivatives used both for hedging purposes-thereby reducing risk if they are used intelligently and properly-and speculatively and extremely dangerously. That can be an acceptable product for a very sophisticated investor to use as a way to leverage his or her risk if he or she is determined to do that.
	Just as it is so important to ensure that doctors are kept abreast of changes in medical science, which in a career of, say, 40 years, can revolutionise the subject, it is enormously important that that should happen in financial services. An "annual validation of competence" would be an excellent discipline that will itself create a market. Professional organisations, business schools and others will arrange regular courses for people in the financial services industry who are affected by the clause and need to keep up to speed. I hope that those courses will involve some test or examination at the end, so that it will be possible to use that as validation. That will greatly reassure the public. I congratulate my noble friend on proposing this extremely intelligent contribution to the Bill.
	I also congratulate the noble Baroness, Lady Kramer, first, on being selected for the very important committee. Even those of us who thought-and still think-that a judicial inquiry is the right approach give our very best wishes to those who have taken on the important task of carrying out the parliamentary inquiry. The credibility of Parliament is at stake here, as is that of our financial services industry, so it is enormously important that people of the highest intellectual calibre and integrity have been selected. I know that the noble Baroness falls under both those categories, as does my noble friend Lord McFall, who is sitting behind me, and I also delighted that he has been nominated for the committee. That is very reassuring to us all.
	The noble Baroness raises a very important issue. There are several possible costs which may emerge to banks if they are found guilty of manipulating a market, in this case the LIBOR market. There are the regulatory fines, which-as the noble Baroness says-are probably the least important in monetary terms, and some of which are already foreseen in the regulatory reports. There is then the prospect of substantial damages for successful antitrust suits that may be brought by the Department of Justice in the United States or possibly the European Commission, or by other antitrust bodies in the future. Then there are the damages that may be awarded by courts, which are much more likely to be awarded if there are criminal convictions in advance of the civil actions.
	These damages can be enormous; one thinks immediately of two categories of person or corporate that may be negatively impacted by the rigging of the market such as the LIBOR. First, there are the derivative traders, who will have found that the product in which they are dealing, such as interest rate futures or derivatives options based on interest rates, has been completely falsified so that when they come to their closing day the price is quite different from what it otherwise would have been. That sort of loss could be easily quantified and there will be substantial suits from derivative traders and dealers of that kind. Secondly, there are those who have borrowed on a LIBOR basis and who may find that at certain periods the LIBOR was falsified upwards. I leave all this open, as we do not know yet. In other words, they were paying more than they should have by way of interest rate-base rate and margin-and will obviously seek to recover that. Again, that can go into enormous sums.
	The noble Baroness, Lady Kramer, is absolutely right to focus on the temptations that will exist here. If a bank has investment banking and commercial banking divisions, there is an obvious reason why it might want to ensure that all these losses emerge in the commercial banking division. It is not particularly because it hates retail depositors but because it knows that Governments tend to stand behind them, both with a retail deposit scheme and-if the bank gets into real trouble and is large enough that its failure might have a systemic impact-with the lender of last resort, which is the central bank in the relevant jurisdiction. That would not happen with the investment banks. People may well say, "Let's take all these losses in the commercial banking division, and if the worst comes to the worst the central bank will pick it up", which basically means the taxpayer.
	One can easily see, therefore, that there is a perverse incentive present here. The noble Baroness is absolutely right to identify this problem, which, it is hoped, is entirely theoretical. No-one has ever conceived of doing anything of this kind. I trust that this is the case; I am sure the noble Baroness also hopes that it is not the case. However, we need to think about these things in Parliament. We need to ensure that the law is robust and that it deters wrongdoing as well as punishes wrongdoing when it occurs. That is the spirit in which the noble Baroness has presented this amendment and I greatly welcome it.

Lord Barnett: My Lords, I, too, congratulate the noble Baroness on her appointment to the Joint Committee. I hope she will be able to do something that, from what I have seen, the committee has not been able to do before-namely, focus on the job in hand. She said-and I disagree with her strongly-that this Joint Committee would be enough to do the job completely. I cannot see that happening from what I have seen of it now, although I am sure she will not be grandstanding as members of the committee are doing today. My noble friend Lord McFall will probably do a better job; I congratulate him too on his membership of the Joint Committee.
	I strongly support my noble friend Lady Hayter on this amendment. I am concerned by the broader issue of the FCA. The Government have changed the name from the FSA to the FCA. I am not sure that the FCA will be any better at dealing with the problems that have arisen about LIBOR or anything else, or with all the mistakes that were made. Perhaps the Minister will have in his brief the number of FSA staff who have now simply changed their letters and become members of the FCA. While I am digressing slightly, perhaps I could digress a little more and ask the Minister if he can do what the noble Lord, Lord De Mauley, could not do earlier; namely, to answer my question about why the Government decided to make a statement about an important issue of loan guarantees on the "Today" programme this morning and not in the House. I look forward to hearing the Minister on that.
	The whole issue of what the FCA is going to be able to do within the Bank of England disturbs me a great deal. I am not at all sure that it should have been done in this way. To give huge powers to the Bank of England, as I said, is hardly likely to help, judging by what has happened in the past. We now know from the governor of the Bank and others that they knew nothing whatever about what was going on, which is rather surprising, to say the least.
	The noble Baroness, Lady Kramer, was able to bring LIBOR into this whole issue in her amendment. Like my noble friend Lord Peston, I am not quite sure how she managed to get it there but she did, and the best of luck to her. I hope that she gets a reply. For the moment, though, I wonder what changes the Minister hopes to see that will improve what went on before. The FSA was clearly not successful in the role that it had been given. I would like to see some of these amendments approved so that we can see the FCA doing a better job. I wish that that might be true but I am bound to say that I look forward to what the Minister will tell us about how great this new FCA will be. For now, though, I will leave it with him and, as I say, perhaps he can digress slightly and answer my other question.

Lord Sassoon: My Lords, I hope that the Committee will agree that it is probably better, given the number of members of the Committee here, if I stick to matters relevant to this group of amendments rather than wandering off into the long grass from where I might never come back. All three amendments in this group relate to concerns that have arisen in connection with the recent LIBOR scandal, and in that context I am sure that the Committee would like to thank not only my noble friend Lady Kramer and the noble Lord, Lord McFall of Alcluith, but my noble friend Lord Lawson of Blaby, the noble Lord, Lord Turnbull, and the right reverend Prelate the Bishop of Durham for kindly agreeing to join the parliamentary committee on banking standards, which goes to the heart of the concerns raised in the amendments.
	I turn to the issue of professional standards. Amendment 104ZB seeks to place requirements on the FCA to impose a training regime. The object of the regime is to specify minimum standards of competence and integrity, and it will include continuous professional development and a code of conduct. Amendment 110ZB seeks to extend the non-exhaustive definition of the integrity of the UK financial system by adding a reference to the professional standards of those working in financial services.
	As a former chairman of the IFS School of Finance-what was previously called the Institute of Bankers-I believe as firmly as anyone that professional education has to be a cornerstone of standards in the banking industry. Personally, I wish that more banks would insist on more of their employees going through structured professional education, not just at the start of their careers but right through them. In answer to the point made by the noble Lord, Lord Davies of Stamford, there are indeed providers of these courses of great distinction, including the IFS School of Finance, and many bankers go through them. However, we would all like to see many more going through them and on a continuous basis.
	Having said that, particularly in the light of the LIBOR scandal, we must ensure that our regulators have the right powers to set and enforce high standards of behaviour in the financial services industry. That is why we have invited Parliament to set up an inquiry into standards in that industry. While I share many of the concerns of the noble Baroness, Lady Hayter, that does not mean that I can support these amendments, which I consider unnecessary and to be coming forward at the wrong time. Neither amendment gives the FCA powers to impose standards of integrity and competence that it does not already have. The FCA's integrity objective contains an indicative and non-exhaustive list of matters that are relevant to the UK financial system operating with integrity. The conduct of those working in financial services is already covered by the objective, even if it is not listed here. The list contains a number of matters relevant to the LIBOR example, including the soundness of the system and the orderly operation of markets. These can be ensured only if standards of professionalism are maintained by those in the industry.

Lord Davies of Stamford: The Minister agrees with me that it is highly desirable that there should be regular courses for people working in the financial markets, so that those advising the less sophisticated can be kept up to date. Yet I cannot understand why he resists the suggestion that that should be a statutory, mandatory requirement-that, as my noble friend's amendment lays down, such people should be forced on annual basis to have their qualifications validated. What is his reason for resisting that?

Lord Sassoon: If the noble Lord, Lord Davies, would permit me to complete the argument, I have explained that the FCA has an integrity objective, under which standards of professionalism need to be maintained by those in the industry. Within the overall integrity objective the FCA already has a mandate and powers to deal with these issues. It will specifically have powers to impose standards, including training and qualification, on individuals. Training, qualifications and minimum standards will be of considerable importance to the issue of re-establishing a proper banking culture. They are matters which will be relevant to the regulators' consideration of applications by persons wishing to become approved to carry out significant influence functions, but it is a big step from that to the FCA mandating a training regime across all areas of financial services.
	The forthcoming reviews, including that of the parliamentary Joint Committee, will show whether my analysis is right, or whether the committee believes that the FCA needs additional powers. To answer at least one of the challenges from the noble Lord, Lord Barnett, I refer back to the existence of the committee; this is going to be central to what it is looking at. I see one member of the committee nodding assent, but I think it is obvious.

Lord Peston: From what we know about the LIBOR scandal is it not valid to infer that, whoever these people engaging financial intermediation are, they are not a bunch of professionals? Is someone not going to have to be responsible for raising professional standards, or if not raising them then introducing them? I am surprised that the Government do not take this as seriously as they should.

Lord Sassoon: My Lords, we take it extremely seriously and that is why we thought that it was right to set up the Joint Committee. Unlike the noble Lord, Lord Barnett, I do not doubt that it will get through its work efficiently, effectively and quickly.

Lord Peston: He is not alone.

Lord Sassoon: I recognise that we are giving it a big challenge and I am grateful to it for taking the challenge on, and for the terms of reference, but we should wait to see what it comes up with in this area. Even if it came up with nothing, there are adequate provisions. On another point that the noble Lord, Lord Barnett, raises, what will be different with the FCA? One of the things that will be different is that the Government are publishing new threshold conditions for all regulated firms. Indeed, they have been published today on the Treasury website in advance of the relevant clauses being debated in due course. They include tougher standards on the probity of staff and management in regulated firms. The noble Lord, Lord Barnett, is right to insist that tougher standards should be imposed by the FCA than the FSA, and that is exactly what we are doing. As ever, he is right on the ball and goes to the heart of the matter.
	That brings me briefly to the second point on these two amendments, which is to endorse their timeliness and to emphasise, as I have already done, that we should wait for the outcome of the Joint Committee's inquiries. I confirm that we will consider very carefully the recommendations of that committee, including any recommendations for legislative change.
	Let me turn to Amendment 110ZC. I will not dwell on the debate about the effectiveness or defectiveness of the drafting, which was identified by the noble Lord, Lord Peston, and owned up to by my noble friend. I shall not dwell on that as that was not the point of the amendment, but it is nice if amendments work in the Bill because we are talking about amending the Bill. This amendment raises an important point about not unfairly penalising the retail arms of our big banks in penalties that may arise for the manipulation of LIBOR. I put on the record again that it is important to recognise that the FSA found for attempted manipulation of dollar LIBOR, not sterling LIBOR. We know there are other investigations going on but, as the noble Lord, Lord Davies of Stamford, pointed out, at the moment we do not know whether the attempted manipulation had any effect, whether up or down. In any case, it is going to be very difficult to calculate the net effect.
	There are two considerations: how things stand under FiSMA and the impact on the structure of the forthcoming Vickers Bill, the banking reform Bill, which will change the effect of the intended amendment significantly. If we take the current position, under Section 206 of FiSMA the FSA has the power to impose penalties on an authorised person who commits misconduct, and the FCA will have this power in future. We should be clear about that, but it is not a matter for the regulator to decide how the firm in question decides to pay and account for the penalty, and the regulator's powers therefore do not extend to directing the firm in this respect. However, the critical point is the effect of the Vickers reforms because, as the Committee knows, we will be making very substantial changes to the banking landscape through the banking reform Bill when we come to implement the proposals of the Independent Commission on Banking. Once the Vickers proposals have been implemented, ring-fenced banks will be authorised persons in their own right, and they will not be liable to pay fines imposed on other authorised persons, so the substance of my noble friend's concern will be addressed for the long term, not just in the case of this particular LIBOR scandal.
	The regulator will also be required to make rules restricting the payments that a ring-fenced bank may make to other members of the group. This will make it difficult for another company in the group to require the ring-fenced bank to contribute towards the payment of fines. We need to get this right for the long term. Where fines fall should link to the authorised person and where there is an overriding concern to separate out parts of the industry, as Vickers has identified, that should be the driver for where fines fall. On the basis of these explanations, I ask the noble Baroness to withdraw her amendment.

Baroness Hayter of Kentish Town: Is that it?
	I will start with a small correction. The Minister said that these amendments arose from LIBOR. If he had picked up my hints when I anticipated him-code for "That's what his friend said in another place when it was going through Committee in March"-he would know that two of these amendments predated LIBOR.

Lord Sassoon: Just to be clear, I said that these relate to concerns that have arisen in connection with the recent LIBOR scandal. Of course, they arise in relation to the contact of the industry more generally. I fully recognise that and I did not in any way exclude that from my remarks.

Baroness Hayter of Kentish Town: Not purposefully; I did not mean it like that. But these amendments are built on many other things. I thank those who have contributed to this debate-the noble Baroness, Lady Kramer, as well as my noble friends Lord Peston, Lord Davies and Lord Barnett. On a small issue, if there are new requirements on the Treasury website today, perhaps they could be shared with Members of the Committee.
	I think the Minister gave us the ammunition that we are asking for. In talking about his role as chair of a training organisation or an accreditation organisation, he said that he wished more banks did structured training. That is the point we are trying to make. Because they do not all do it, we want it mandated. He also said that there will be a higher entry bar for new approved persons. But this is not just about people coming into this industry; something needs doing now. That is also what these amendments are about.
	Most worrying, however, is that there was no reference to a code of conduct. That is why I was slow to get to my feet; I was awaiting another page. Obviously, the Government do not feel that is needed in this industry for financial professionals on whom we rely as clients and consumers. It is highly regrettable that the one thing the Minister did not bother to answer on was the need for a code of conduct. I do not know what it is about that that he cannot accept. I do not know why he cannot accept the demand for proof of competence. As was made clear, there need not be one proof of competence for everyone in this field; there can be a range of them. We are not asking for a single mandate; we are asking for the FCA to come up with a regime that would have competence requirements.
	Finally, my question, like that of my noble friend Lord Barnett, is this: what will improve without such amendments? If this is just the FSA becoming the FCA, will we see anything different? I believe we need some signals about a code of conduct and raising standards. This may be something we need to return to later but for the moment I beg leave to withdraw the amendment.
	Amendment 104ZB withdrawn.
	Amendments 104A and 104AA not moved.
	Amendment 104B
	 Moved by Lord Flight
	104B: Clause 5, page 16, line 30, at end insert-
	"(9) The FCA shall work with the Department of Education to secure the provision of teaching on financial literacy at both primary and secondary level."

Lord Flight: My Lords, everyone will be aware that the FSMA included a key brief to the FSA to advance financial education. My observation is that pfeg and some of the other charities have done a reasonable job, and that certain banks such as RBS provide reasonable courses, but that still in our schools financial education is extremely mixed. If people have not had financial education at school, it is unrealistic to think that they will get it as adults when they need it. It is an absolute prerequisite of life today that children growing up should become what I will call financially literate. We all have to look after ourselves so much.
	This amendment is not exactly what I would wish. I would like financial education to be part of the required curriculum in schools and I have asked a question on that matter in the past. However, I have put forward this probing amendment to see whether the Government have to offer rather more than we have at present in terms of making sure that there is universal financial education in our secondary schools.

Baroness Liddell of Coatdyke: My Lords, I have felt passionately about financial education for a long number of years and I support the probing amendment in the name of the noble Lord, Lord Flight. I first became interested in the issue in the late 1990s in the aftermath of the personal pensions mis-selling débâcle when many highly educated and sophisticated people were mis-sold products, largely because of the impenetrable nature of the language in the retail product being presented to them and, harking back to some of the issues raised in the previous debate, the less than adequate performance of some independent financial advisers.
	Since then my concern has become even greater as we have seen more mis-selling scandals, such as payment protection insurance and inappropriate hedging instruments for small businesses against interest rate movements. Added to that, there is constant pressure on people to get involved in financial instruments at very great cost-everything from store cards through to payday loans. There should be a fundamental understanding on the part of people that when they take out something like a payday loan, it is not a printing error when the rate of interest is in four figures. It is there deliberately as a means of making money.
	This issue comes up regularly. FSMA looked at it. Every time there is a debate on financial services, financial literacy is raised. It has become motherhood and apple pie. However, a point will come when we start to take this seriously. I was lucky enough to go to a school in an area that had a mutual bank, the Airdrie Savings Bank, which continues to exist as the last surviving mutual savings bank. It provided certain financial education in schools. I have to say that there was probably a subplot because I still have the little silver bank and I still retain a passbook for the Airdrie Savings Bank. I have no doubt that the Royal Bank of Scotland did exactly the same when it did its work in schools. That is laudable, but at the end of the day the issues are now too great to leave it to charitable and well meaning organisations. There is a need now, for the well-being of the citizenry as well as the well-being of our financial services sector, to put financial literacy firmly on the curriculum, and I would hope not just here in England but in Scotland as well. I support the amendment in the name of the noble Lord, Lord Flight.

Baroness Turner of Camden: My Lords, I support what my noble friend has just said. For a number of years, I was chair of the ombudsman council of the PIA, which later merged into the FSA. We used to discuss the reports from the ombudsman and one of the things which bothered us enormously was the level of illiteracy in financial services. We began to worry about this and to wonder what we could do about it. Eventually we set up a sort of panel of interested, qualified people who would talk to schools and so on to ensure that we were doing at least something to try to remedy what we saw was an enormous problem with regard to education. Therefore, I very much support what my noble friend has said. She is absolutely right. We did our best then, but we were taken over and I have no idea whether the FSA continued what we had begun. Certainly we wanted to do that and we did it and it was quite popular for quite a long time. I hope that this amendment is taken seriously by the Government because it is a very important issue.

Lord Stewartby: A brief point of order: the screen has got stuck.

Lord Hodgson of Astley Abbotts: My Lords, my noble friend has moved a very interesting amendment. We may be in danger of confusing two issues. The noble Baroness referred to impenetrable language. I quite accept that, but that is a question not of financial literacy but of improving the form in which the communication is made. To try and deal with financial literacy is a much narrower issue than impenetrable language. I support her entirely, but I would also add the form and content. How often do we get a letter from our credit card company saying that it is going to amend the terms in which the credit card is offered? It is four pages of closely packed print and what do we do but drop it straight in the waste paper basket. However, the company has complied with the requirement. In those cases, the famous phrases "less is more"-less information, better focused-is what we should be all about.
	That is an important point though not exactly what my noble friend was driving at. I think my noble friend was driving at something designed to deal with people at an earlier stage of their life. In particular, it has relevance to Amendment 104C, in the names of the noble Lords, Lord Peston and Lord Barnett, about the unavoidability of some risk. One of the issues that has somehow got about in the world is that we can actually insulate people from risk. When we have financial literacy lessons, we need to emphasise to everybody that there is no product anywhere that does not carry some level of risk. I am looking forward to hearing the two noble Lords on this issue in a few minutes. I have only one question on my noble friend's amendment. Who pays for all this?

Lord Peston: Is the noble Lord going to answer that first?

Lord Flight: My Lords, at present it is effectively paid for via the charges of the FSA, which then go in a charitable form to pfeg and others and which is inadequate. However, one could turn it the other way round-one could do it how one wants. With schools teaching English literature, that is part of their budget. In my view, schools should be obliged to teach financial literacy and that should be part of their budget as well.

Lord Peston: My Lords, I am very sympathetic to the amendment and to what has been said by my noble friends. Unlike them, I am much less optimistic about what can be achieved, if anything. First, I will give the personal side. When I was at school, I was indebted, and have been indebted for the rest of my life, to my teachers for the guidance they gave me on the subjects that were taught in school. My love of English literature and my love of mathematics are two very good examples. However, if someone had said "Now we are going to have a class in finance", I cannot believe that it would have been other than a turn-off. It would not have been what I went to school for.
	Times have changed. I agree with that. However, the other thing is that is amazingly difficult to explain to people even the most elementary examples of financial literacy. To give one example, which is one of my bête noire, I come from a family of gamblers. I know that gambling is a mug's game because to be a successful gambler, there are only two possibilities. Either one is corrupt and has some inside information or one is claiming-with the bookmaker creaming 10% off the top-that one is 10% cleverer than anybody else around, and there is absolutely no reason to believe that. When I have tried to explain that elementary proposition in financial literacy, I have found it impossible to persuade anybody at all. That is my personal experience. It does not mean that we should not try, but it does mean that there is a genuine question mark over what we can achieve. I am not saying that we should not try, but I am pessimistic.
	I turn to the technical side of financial literacy. Perhaps noble Lords have read a brilliant speech given by Andrew Harvey of the Bank of England in 2009. It is on the Bank of England website. My strong advice to noble Lords is to look it up under "Speeches" rather than "Publications". I wasted a good hour knowing that it was there but unable to find it. It is a brilliant analysis of the behaviour of financial intermediaries-which is after all the essence of financial literacy-and it is based on network analysis, which is a rather esoteric part of mathematics. I will read one paragraph from Andrew Harvey's lecture, which I strongly recommend.

Lord Lawson of Blaby: Andrew Haldane.

Lord Peston: Sorry-Andrew Haldane. I am not good on these things. Names are one of my Alzheimer's problems. Mr Haldane says, in a typically short paragraph of his brilliant lecture:
	"This evolution in the topology of the network"-
	that is, the network of financial intermediaries-
	"meant that sharp discontinuities in the financial system were an accident waiting to happen. The present crisis is the materialisation of that accident".
	Financial literacy means being able to understand those two sentences. I am not a bad mathematician but even I had difficulty with the topology of networks. That is the problem in this area. What you can teach at the level at which the noble Lord, Lord Flight, wants to teach, is very little indeed. As I said, that does not mean that we should not do it, but we should not delude ourselves that we can produce a financially literate population because most people simply do not have the mathematics to understand this kind of work. I cannot believe that anybody could write a non-mathematical explanation of what Andrew Haldane said.
	Nothing I have said should stop us from trying-I am not going against the noble Lord, Lord Flight, on this-but financial literacy is not the easiest thing to achieve.

Lord Hodgson of Astley Abbotts: Does the noble Lord not agree that two or three basic things could be taught relatively easily? The first is the impact of inflation and how it affects the value of savings. The second is the impact of compound interest and the costs and returns of borrowing. Those two subjects do not require the brilliant mathematics of which the noble Lord alone is capable. Quite realistic, real-life examples could be given to people in their final two or three years at school.

Lord Peston: I have had a little experience of this. In my younger days in the Treasury we tried to persuade senior Treasury officials that capital investment projects ought to be dealt with by discounted cash flow. We were talking to senior officials who were brilliantly clever, but it was nearly impossible to teach them even about compound interest. When we had taught them compound interest, they had no idea how to convert it into discounting. Again, I am not saying that we should not teach compound interest in schools-quite the contrary. All I am saying is that it is not easy.

Lord Northbrook: I support the amendment of my noble friend Lord Flight. Financial literacy is not sufficiently taught in schools. Perhaps the Department for Education could encourage the BBC, which is very weak in the area of discussing business, let alone business education, to ask Robert Peston to do a programme on it.

Lord McFall of Alcluith: My Lords, I agree not with the pious nature of the amendment of the noble Lord, Lord Flight, but with the realism of my noble friend Lord Peston. I chaired a workplace retirement income commission last year for the National Association of Pension Funds. We have seen a flight from defined benefit schemes to defined contribution schemes. As a result, we invited a Harvard professor to examine and explain the defined contribution scheme. He told us that he was unable to understand his own defined contribution scheme, never mind anyone else's. Therefore, while financial education may be good, it is not the whole show.

Lord Flight: My Lords, although I acknowledge the issue, I do not believe it is that difficult. I observe that my own parents learnt basic accounting some 90 years ago at ordinary grammar schools in London as part of the general certificate. That stood them in pretty good stead. Even in my time, when I was doing basic economics, what I learnt was pretty fundamental to understanding what equity was, what debt was, and so forth. The courses that are up and running are pretty effective-for example in my own school, of which I have been a governor for many years-although I do not say that they are perfect. One of the problems is that since the Second World War, money has almost been thought of as dirty within the educational world. This is something to shy away from. One of the crucial things is for the schools themselves to have staff who can be taught to teach and be enthusiastic about the subject.

Lord Stevenson of Balmacara: My Lords, we support this amendment in the name of the noble Lord, Lord Flight, although in saying that, like a number of noble Lords, we worry that it does not go far enough in simply calling for the FCA to work with the Department for Education. Surely all children and young people should have access to a planned and coherent programme of personal finance education so that they leave school with the skills and confidence to manage their money effectively. Knowing how to manage money and be a savvy consumer is a vital life skill in an increasingly complex world. Education is about giving young people the skills and knowledge they need to get on in life, which is why we should get behind a campaign, so that every child should not only learn the three Rs at school, but also learn about pensions, savings, borrowing and mortgages.
	As we have heard, personal financial education is covered in the primary curriculum at present, but it is only there as part of the non-statutory framework for PSHE-personal, social, health and economic education. There are, of course, opportunities with a number of subjects across the curriculum to learn about financial matters, including citizenship-compulsory for all 11 to 16 year-olds-mathematics, business studies, careers, and enterprise education. However, we think this important life skill should be made compulsory, as the previous Government were indeed planning to do in the last Session of the preceding Parliament. Sadly, there has been no legislative progress for the past two years.
	As the Minister will be aware, an e-petition calling for financial education to be a compulsory part of the curriculum got more than 100,000 signatures last year and led to a Westminster Hall debate, which is worth reading in Hansard. Many Members of your Lordships' House will know of Martin Lewis of the website moneysavingexpert.com, who has been campaigning on this issue for several years now, and was indeed the man behind the petition. He has recently corresponded with the Prime Minister, and the most recent exchange was an open letter to the Sun, which provoked a response which I would like to share with your Lordships' House.
	The Prime Minister writes to "dear Martin" and thanks him for the letter. He goes on to say,
	"It is true that young people should have access to good quality personal finance education, so that they leave school with the knowledge and confidence to manage their money effectively".
	He goes on:
	"The PSHE non-statutory programmes of study include elements aimed at ensuring that, by the time they leave school, pupils should be able to manage their money, understand and explain financial risk and reward and identify how finance will play an important part in their lives and in achieving their aspirations".
	This goes some way toward answering some of the points made by my noble friend Lord Peston. The Prime Minister goes on to say:
	"This economic wellbeing and financial capability strand of PSHE was only introduced in September 2008 and Ofsted reported in 2010 that schools had not yet got to grips with this".
	We understand some of the reasons for that now. We are aware that some aspects of PSHE are patchy and, as you say, there are some schools that are not able to access good resources. However, the letter concludes:
	"We believe it is important that schools are given the freedom and space to provide a truly rounded education, including important things such as finance education".
	However, Martin Lewis's response to the letter says it all. He thanks the Prime Minister for his comments, but he says that,
	"financial education must be deemed a core skill. It's the cheapest way, long term, to prevent millions being screwed by scandals such as PPI, bank charges and endowments, to help people keep energy costs down and tackle our debt epidemic".
	The letter finishes:
	"So far, your government's only commitment has been Schools Minister Nick Gibb saying: 'It'll be looked at in the curriculum review.' That's good, but please ensure this isn't political double-speak for being filed in the bin".
	We believe that every child deserves to be supported in the development of the behaviours, attitudes and skills which will allow them to effectively manage their finances in order to fulfil their potential. However, it must be part of the core curriculum, and it must be compulsory. The recent Impact Review of Financial Education for Young People conducted by MAS, confirmed that attitudes to money are formed early. All the experts in this area agree that financial education has to begin as early on in a young person's school career as possible and should continue in a progressive way year on year.
	We agree with the amendment of the noble Lord, Lord Flight, but regret that it does not go far enough, simply calling for the FCA to work with the Department for Education. As Martin Lewis said, that sounds to me a little like political doublespeak for filing it in the bin.
	As the Minister will be aware, a Private Member's Bill was introduced recently in the Commons, which would require financial literacy to be included in the national curriculum. So the Government have the luxury of a choice here. They can take the low road and accept the amendment from the noble Lord, Lord Flight, or the Minister could take the high road and indicate today the Government's support for the Private Member's Bill, which would get us to where we all surely want to be on this motherhood-and-apple-pie issue.

Lord De Mauley: My Lords, Amendment 104B, as my noble friend Lord Flight has explained, would require the FCA to work with the Department for Education to secure the teaching of financial literacy in primary and secondary schools. I am sure, as the voices around the House have confirmed, that we all agree on the importance of financial education for young people and indeed for adults. The Government share this view.
	As the noble Lord, Lord Stevenson, said, finance education is currently taught as part of non-statutory personal, social, health and economic education. I think that was how the previous Government set it up. The Department for Education is reviewing PSHE education, including whether any aspects of it should become statutory as part of the basic curriculum, and will be carefully considering the position of finance education. The Money Advice Service is feeding into this review.
	However, the FCA is being set up as a focused conduct of business regulator. The Money Advice Service is the appropriate body to work with the Department for Education at an operational level on matters of financial literacy. MAS was established by the FSA, and its objectives are set out in new Section 3R of FiSMA, as inserted by Clause 5 of the Bill currently before your Lordships. They include an objective,
	"to enhance-
	(a) the understanding and knowledge of members of the public of financial matters".
	I cannot see how MAS could discharge this function without working closely with the Department for Education.
	MAS was established by the FSA as an independent body with similar oversight arrangements to the FOS and FSCS. It has a statutory function to enhance the understanding and knowledge of members of the public of financial matters and their ability to manage their own financial affairs. The FSA must take such steps as are necessary to ensure that MAS is, at all times, capable of exercising its consumer financial education function.
	The FCA will take on the FSA's responsibility for consumer protection and conduct regulation, and will oversee MAS in the same way as the FSA does now. MAS will continue to have operational independence. To give the FCA responsibilities in the area of financial education would not only risk diluting its focus but would duplicate the role of MAS. So, in short, I do not believe that this amendment is necessary. I ask my noble friend to withdraw it.

Lord Stevenson of Balmacara: I wonder whether the Minister can answer my point about the Private Member's Bill which is going through the other place. It seems to me to offer a way forward on this issue. If he cannot give me a reply today because he has not been briefed on this matter, perhaps he could write to me.

Lord De Mauley: My Lords, I think I addressed it, although I did not express it in those terms. I said that the department is reviewing PSHE education, including whether any aspect of it should become statutory. That was intended to be my response. The noble Lord knows the Government's approach to Private Member's Bills.

Lord Flight: My Lords, as I said, this was intended, largely, as a probing amendment. I am glad that MAS is continuing with its role. I am strongly of the view that financial literacy should be part of the core curriculum. The teaching of it at present is mixed and, in general, I do not think it is adequate. We have had a useful discussion of the subject and I beg leave to withdraw the amendment.
	Amendment 104B withdrawn.
	Amendment 104BA
	 Moved by Baroness Hayter of Kentish Town
	104BA: Clause 5, page 16, line 30, at end insert-
	"1BA Memorandum of understanding between FCA and Office of Fair Trading
	(1) The FCA must co-ordinate with the Office of Fair Trading (OFT).
	(2) In particular, the FCA and the OFT must prepare and maintain a memorandum of understanding which sets out their respective roles and responsibilities and how they will work together.
	(3) The FCA must-
	(a) lay before Parliament a copy of the memorandum and any revised memorandum, and
	(b) publish the memorandum as currently in force in such manner as it thinks fit."

Baroness Hayter of Kentish Town: My Lords, Amendment 104BA stands in my name and that of my noble friend Lord Eatwell. Much will change in the OFT, partly as a result of the Public Bodies Act, the forthcoming Enterprise Regulation and Reform Bill, and this Bill, with responsibility for consumer credit moving from the OFT to the FCA.
	This amendment is not so much about that but about the all-important competition role of the OFT, until that, in due course, moves to the CMA. That includes competition references and market studies, as well as super-complaints and promoting competition. Meanwhile, as we know, and welcome, the FCA has also taken on a new remit to promote competition in financial services.
	On 14 June in another place, Mark Hoban for the Government welcomed the fact that the Office of Fair Trading and the Financial Conduct Authority will take forward the ICB recommendations to improve transparency across all retail banking products. If the OFT retains the right to conduct market studies in relation to financial service markets, the ABI is concerned about the risk of duplication and/or the lack of co-ordination between the FCA and the OFT. Therefore, the ABI feels that the OFT should be subject to a statutory duty to cooperate and to produce an MoU. It would certainly be the preference of the ABI for the FCA normally to take the lead on competition matters, and for the OFT to undertake market studies only in exceptional circumstances.
	Meanwhile, the consumer world, not dissimilarly, would like the relationship between the FCA and the OFT changed from that set out in the Bill. The consumer world would like the FCA to have the same powers as a number of other sectoral regulators to make competition referrals themselves-that is, the equivalent of Section 131 powers. I am attracted to that but have not tabled an amendment specifically on that at this stage, in the hope that this amendment will give the Minister the chance to explain why he has not replicated such an enabling power within the present Bill. Without such a power, the FCA will still have to refer cases to the OFT for market analysis before a referral to the Competition Commission can take place. It sounds-and I guess it will be-a bit slow. It also adds additional, possibly unnecessary, hurdles. The Joint Committee agreed. It said:
	"The Government should review its decision on the FCA's competition powers. The FCA should be given concurrent powers alongside the OFT to make market investigation references to the CC. The FCA will need greater competition powers to achieve its recommended objective than is currently set out in the draft Bill."
	We know from the debate in the other place that the Government, however, prefer the FCA to continue to have to make a referral to the OFT, which would allow the FCA to draw on the expertise of the OFT. However, the Government have agreed that they will review whether the FCA should have specific competition powers in five years' time.
	It is hard to see why a new authority, set up with a specific and new remit to promote competition, should not have the requisite powers. But perhaps we will hear the rationale when the Minister replies. Meanwhile, the OFT is itself keen to establish greater clarity for interested parties on how the OFT-and subsequently the CMA-and the FCA will work together, and the OFT is very happy for this issue to be raised today. The OFT judges it important for effective debate on the Bill that there is an understanding of how the OFT and FCA will work together.
	There is, of course, also the matter-a smaller matter, perhaps-of the handover of consumer credit responsibility from the OFT to the FCA, and various transitional issues. The handling of these should no doubt also be included in any MoU.
	The current OFT acknowledges that a key issue will be the publishing of a memorandum of understanding setting out the respective roles of the OFT and the FCA, their responsibilities and how they will work together. Indeed, I understand that the OFT has already begun working with the FSA on a draft MoU and is keen to establish greater clarity for those two parties and for those of us looking from the outside.
	I am aware, although my eyesight is not that good, that the Minister has a file entitled, "say no to everything". I hope in this case that he might drop that and just agree that an MoU may be without that remit. I beg to move.

Lord Flight: My Lords, my Amendment 173D covers essentially the same point, but is in that part of the Bill that deals with the practical operation of the competition objective for the FCA. There is clearly a risk of duplication or lack of co-ordination between the OFT and the FCA, so Amendment 173D proposes a legally binding MoU setting out how the two bodies will co-operate together and who will do what. It should be made clear that the FCA would normally take the lead on competition matters in financial services and the OFT would undertake market studies in exceptional circumstances. The competition objective for the FSA is very well worded, very clear and extremely appropriate. Consumers need a healthily competitive market. I am still of the view that the PRA should have a competition objective. It is the lack of competition that led to a cartel in banking. Whenever you get a cartel you get bad habits, so, in my book, a major aspect of having a much healthier banking system is having more competition.

Lord De Mauley: My Lords, Amendments 104BA and 173D both relate to co-ordination between the FCA and the OFT. Amendment 104BA would require the FCA to co-ordinate with the OFT and to prepare and maintain a memorandum of understanding to be laid before Parliament and published as it sees fit. Amendment 173D, in my noble friend's name, is similar, but the duty to co-ordinate, and to establish an MoU, relates solely to the promotion of competition. Amendment 173D would also require the MoU to make it clear that the OFT will conduct a market study into a financial services market within the regulatory remit of the FCA only in exceptional circumstances.
	Before turning to the question of the need for statutory provision for co-ordination between the FCA and the OFT, it might help if I explain the approach taken elsewhere in the Bill. The Bill provides for a properly focused regulatory system in which the individual regulators have clear roles and responsibilities and the right tools to deliver them. It is right, therefore, for the Bill to provide explicitly for co-ordination and MoUs between the key players in the system for regulating financial services-the Bank of England, the FCA, the PRA, the Financial Ombudsman Service, the Financial Services Compensation Scheme and the Treasury-so that they can work together effectively without the boundaries between their roles and responsibilities getting blurred, and of course the legislation sets out a procedure for laying these documents before Parliament.
	Clearly, the FCA will need to work closely with the OFT and, in due course, the Competition and Markets Authority. In fact, the FSA already has an MoU with the OFT on a non-statutory basis and the FSA is already working with the OFT on putting in place a memorandum with the FCA.
	To address the need for particularly swift and effective co-ordination in cases where a large number of consumers have suffered detriment, such as the mis-selling of payment protection insurance, the FSA has put in place additional formal mechanisms for co-ordination such as the Coordination Committee of the FSA, the OFT, the FSCS and the FOS. Statutory duties to co-ordinate and maintain MoUs are not needed to underpin that co-operation. That already happens and is effective.
	On the specific issue of competition, which Amendment 173D addresses, the FCA, as the lead regulator for financial services, clearly will need to work closely with the OFT, as the central competition authority. Of course, the regulators will have to co-ordinate their work so that their own resources are used effectively and duplication is avoided. Although they will need to take into account their respective regulatory objectives and priorities, powers, expertise and resources, I contend that we should allow the regulators, based on careful consideration, to develop an effective protocol for working with each other in order to promote competition.
	I am particularly concerned with the part of the amendment that would stipulate, from the outset, that one of the regulators-the OFT-could only be involved on an "exceptional" basis. Such a rigid approach would not help the regulators to deliver arrangements which focus on the best way of promoting competition. I note that the OFT does not have a statutory MoU with any other of the sectoral regulators with which it currently works to promote competition.
	The noble Baroness, Lady Hayter, made reference to the OFT and suggested that it would be inefficient if there were two sets of market studies, one after the other. She makes an important point. If the OFT receives a referral from the FCA which is accompanied by appropriate evidence and analysis, the OFT may go straight to the consultation stage without conducting a further market study of its own. There is precedent for this in the OFT's approach to the audit market. In that case, when the OFT received the report of the House of Lords Economic Affairs Committee, it went straight to consulting on a reference to the Competition Commission, rather than conducting its own market study.
	I hope that I have persuaded your Lordships of the importance of flexibility in this area. Although my file does not say, "Say no to everything", as the noble Baroness, Lady Hayter, suggested, in this case I do ask her to withdraw her amendment.

Lord Peston: My Lords, I very much agree with my noble friend Lady Hayter and with the noble Lord, Lord Flight, that competition is the best means of consumer protection. There are occasional counterexamples, but overwhelmingly that is what matters. However, it occurred to me while listening to the noble Lord's reply that I do not now know which is the primary body in dealing with competition in the financial intermediary sector. Is there a straightforward answer to that? If I had been asked to guess, I would have guessed that it must be the new Competition and Markets Authority, because its remit is about competition, whereas the FCA's remit is not. Can we have an answer to that? If we do not know the answer, could we be told the next time we meet who is the prime mover in this?

Lord De Mauley: I am pretty sure that the noble Lord is correct in his analysis, but if there is any change to that, I will write to him.

Baroness Hayter of Kentish Town: My Lords, the fact that the Minister does not know the answer to that seems to me to make the case for why we need an MoU. In fact, in his answer he went through the sorts of things that the OFT and the FCA would need to look at-their objectives, their resources and their method of working. We are not setting out what those should be. We are simply saying that there should be an MoU that sets out those sorts of things, things such as when one will take the lead and when the other will.
	I accept, sadly, that the specifics in the amendment of the noble Lord, Lord Flight, which we were attracted to, are probably more than we could hope for from the Government. However, as the Minister has admitted that there need to be MoUs for all the other key players-the Treasury, the Bank of England, the FOS, the compensation schemes and so on-it would be extraordinary not to have one for what he now accepts is the prime competition authority: the OFT currently, but the CMA eventually. I hope that the Government will think about this again. The lack of an MoU for the prime competition authority would seem to create a slightly opaque situation for the other market players that want to know who leads on certain items. In the hope that the Minister will think about that, although he did not promise to, I beg leave to withdraw the amendment.
	Amendment 104BA withdrawn.
	Amendment 104C
	 Moved by Lord Barnett
	104C: Clause 5, page 16, line 35, at end insert-
	"( ) the need to inform and educate consumers with special emphasis on the unavoidability of some risk;"

Lord Barnett: My Lords, the amendment stands also in the name of my noble friend Lord Peston. It is fairly self-evident, referring to,
	"the need to inform and educate consumers"-
	which I assume everybody is in favour of-
	"with special emphasis on the unavoidability of some risk".
	Life is full of risk, certainly in the financial area- I hope that everybody accepts that. New Section 1C(1) states:
	"The consumer protection objective is: securing an appropriate degree of protection for consumers".
	If the Minister is unable to accept our amendment, I hope that he can explain what,
	"appropriate degree of protection for consumers",
	the Government have in mind. It is unclear to me what is "appropriate" in this case. I hope that,
	"emphasis on the unavoidability of some risk",
	can be considered seriously. When my noble friend talked a little earlier about his experience in school, he said that he did not think that he would not have been terribly interested if anybody had taught him about financial affairs, but I think that risk would be fairly simple to explain even to most teenagers at school. In those circumstances, this amendment seems reasonable to me and I hope that the Minister will be able to accept it. I beg to move.

Lord Flight: My Lords, it strikes me that the Bill slightly buries "buyer beware", which was in FiSMA, and that we are creeping towards a culture where a lot of people think that if they lose money on any investment they are entitled to compensation. I do not wish to be overly harsh but it is fundamental, as the noble Lord said, that people understand risk and graduations of risk. That is backed by financial education.

Lord Borrie: My Lords, in agreeing with my noble friends Lord Barnett and Lord Peston in their amendment, I agree also with what the noble Lord, Lord Flight, has just said. He did not used the famous Latin phrase "caveat emptor", perhaps because we are not supposed to use Latin any more-that is the case in the courts; it may be not so here. If it is convenient to the Committee, I shall speak to Amendment 106, which is grouped with my noble friends' amendment.
	The Bill states that the Financial Conduct Authority, in assessing the degree of consumer protection that is desirable,
	"must have regard to ... the needs that consumers may have for the timely provision of information and advice that is accurate and fit for purpose".
	The noble Baroness, Lady Oppenheim-Barnes, has kindly joined me in Amendment 106, because, while we agree about information and advice having to be accurate, we are not happy about the phrase "fit for purpose" and would prefer it to be replaced by "intelligible".
	"Fit for purpose" is a vague and uncertain phrase. As the consumer organisation Which? has said in briefing to me and no doubt to others, it is a woolly phrase and invites the question: whose purpose? It has become fashionable to use the phrase "fit for purpose" for all sorts of reasons, and despite its perfectly respectable origins in Section 14 of the Sale of Goods Act and indeed previous common law, it is now used to such a wide extent in all sorts of circumstances that it would be better replaced in the Bill with "intelligible".

Baroness Oppenheim-Barnes: My Lords, I was delighted to add my name to that of the noble Lord, Lord Borrie, on this amendment. We go back a very long way to when I first entered the Department of Trade and Industry. The position of director-general of fair trading was coming up for renewal and my officials said to me, "Well, you will obviously want to appoint somebody from your own side, Minister", to which I replied, "There is only one person with whom I would be entirely satisfied". That was the noble Lord, Lord Borrie, and this has proved to be the case ever since.
	This amendment is important. Perhaps I am not so happy with the term "fit for purpose" because I spent a great deal of my consumer life trying to find a better one, which I never did satisfactorily, in order that people could pursue their Sale of Goods Act rights. However, I will have more to say on this later-on Amendment 108, I think-when we reach that.

Lord Peston: My Lords, I supplement what my noble friend Lord Barnett and others have said about the built-in risk of pretty well every financial instrument that one might acquire. This amendment is very much in line with that made earlier by the noble Lord, Lord Flight, on education. Therefore, again I must add my cautionary note that it is very hard to persuade people that the world is full of risk, particularly when it comes to instruments that look risk-free-for example, a government bond, which our Government have never reneged on. However, if it is a bond fixed in nominal terms, there is always the risk of inflation so that the real rate of return is highly risky. In a second example, the date of repayment of the bond can be an issue, so that even with a perfectly honest Government who intend to pay on the due date, if you have to cash the bond in at a different date then there is risk involved. It is vital that people understand these kinds of examples.
	The other risk, and I am not quite clear how we can approach it, essentially stems from the possibility that the people one is dealing with are corrupt. To take the obvious example, if you are offered a particular asset with a high nominal rate of return, is this because the financial intermediary offering you that asset is particular inefficient or because they are up to no good and the only way they can lay their hands on this money is with a high rate of interest?
	It is often immensely hard to disentangle whether you are running a risk by acquiring such an asset, and perhaps the great WC Fields's dictum is relevant here:
	"Never give a sucker an even break".
	The world is full of people like WC Fields, but how is the ordinary person to know if they are dealing with one? It seems to me, therefore, that the relevant authorities have a responsibility at least to take on board their duty to be of assistance to people, partly in an educative way, and partly by controlling the behaviour of people themselves.
	I very much look forward to hearing the noble Lord's reply on the question of risk. However, to summarise, my main point is that if you are living in an area where there is no risk, then you are dead.

Lord May of Oxford: I shall make a couple of comments in favour of the amendment. As I understand it, its general sense is to state that there is a duty of care. The medical profession and the legal profession have an explicit duty of care. An interesting seminar brought together economists, lawyers and philosophers in Oxford over the past year and a half, working towards trying to say something sensible about this. As I understand it, the amendment is intended to say that, of course, we have to understand that there are risks, but that we know of specific examples where customers have had cheerfully and aggressively marketed to them investment instruments that the vendor itself, Goldman Sachs, was betting against. The gist of the amendment-and other things that I would like to be in the Bill in a much more explicit and in-your-face way-is to assert that there should be a real duty of care.

Lord Hodgson of Astley Abbotts: My Lords, I very much support the amendment, as I said when speaking to my noble friend's amendment a few minutes ago. There is a real danger of failing to distinguish between risk and fraud. They get intermingled in the public's mind. Clearly, fraud is absolutely unacceptable and needs to be chased down and prosecuted with all possible vigour. Too often, in this compensation-culture era, a risk that goes wrong is seen as fraud: "I should not have lost money". One difficulty with the interesting concept, proposed by the noble Lord, of duty of care is that although you can explain very clearly to people the risks that they are taking, when it does not happen as you and they hope-things are volatile-they are inclined to forget that they were given the appropriate warnings. Our emphasis must be on making sure that risk is understood; and that fraud is unacceptable; but that the two are completely distinct. There is a confluence in the public mind, sometimes encouraged by the way that the newspapers report it, of two issues. There are plenty of cases where fraud has happened-that is wrong-but there are also cases where people have taken risks which they anticipated would deliver them huge returns. When they did not, because they were highly risky, they did not see themselves in any way responsible; they sought someone else to blame.

Baroness Hayter of Kentish Town: My Lords, I was particularly grateful to hear the words of the noble Lord, Lord May of Oxford. We will shortly come to a specific amendment about a duty of care. I hope that he will be here to repeat his words in 20 minutes or whenever we reach the amendment. I also hope that the Minister can pick up a briefing note that says "support". His face tells me possibly not.
	At Second Reading, I talked about caveat emptor, not having realised that it is no longer the accepted term. I have concerns about it because it is rarely used as an excuse for ordinary consumers to say, "Oh, I lost money"; it is far more used by producers to say, "Well, we told you so", even if it was, as the noble Lord, Lord Hodgson, said on an earlier amendment, on page 4 of small typed script of something that had been sent to them. I remain of the view that responsibility for ensuring that consumers know what they are buying rests with the provider by producing intelligible and appropriate information. We will turn to the issue of duty of care shortly.
	The Joint Committee on the Bill wrote that, should it be essential for the FCA to have regard to the behaviour of consumers, the FCA duty should be amended as set out in Amendment 105, in my name and that of my noble friend Lord Eatwell. As the Joint Committee stated,
	"provision of information alone will not significantly improve consumers' ability to make well-informed decisions. The information needs to be easily understandable and accessible".
	There is widespread suspicion that many purveyors of financial products deliberately try to keep certain customers in the dark. That confusion can mean that some, blinded by graphs and numbers, sign up to a product and later down the track find themselves caught by certain clauses and conditions of which they had, sadly, been unaware.
	An issue just as difficult, of course, is the ability to compare prices and thus to shop around-an essential element of the much-vaunted caveat emptor, or competition, on which the Government rely to improve services. Martin Wheatley, the chief executive-designate of the FCA, has described the difficulty for consumers in comparing products such as bank accounts, which are structured in a way that makes it really difficult to establish whether the product is good value. We all know of practitioners who talk in terms so remote from the common-sense understanding of contractual agreements that people are unaware of what they are signing up to. This was undoubtedly the case with the recent interest rate swaps.
	Asked whether firms had a duty to go beyond their legal responsibility to consumers, Mark Hoban MP said in another place:
	"It is in the interests of firms to ensure that consumers do understand the products that they are buying because it then minimises the risk of problems further down the track".
	Although I agree with those sentiments, that answer seems to be about not having to pay redress later, rather than trying to prevent the mischief in the first place. Unless we do something to reduce such occurrences-today we have already mentioned PPI, personal pensions and mortgage endowments-we will have learnt nothing from what has gone wrong.
	However, as the amendment moved by my noble friend Lord Peston makes clear, it is not simply language-the "crystal mark" of plain English-that is important. This is about explaining the risk to which the consumer is signing up, or for which they are paying money so that someone else takes that risk in exchange for the payment. So they might buy a product that covers the risk of inflation but does not cover longevity, or vice versa. Or a product might cover their life expectancy but not that of their surviving spouse. The permutations are endless. What is key is that, in addition to the language being clear, the limits of the product should be clear so that-in the famous words-there are "no surprises". If I buy a bottle of Coke I will know its size, volume, sell-by date and taste. Regulation has sorted out much of that. We need to give this regulator the ability to expect no less from the providers of services which they are selling to largely unsuspecting customers.
	In the other place, the Minister said:
	"The Government recognise that there can be significant information and capability asymmetries between firms and consumers",
	and that poor "provision of information" could be a key factor in,
	"a consumer ending up with an unsuitable product".
	He therefore fully supported,
	"the intention behind the amendments"-[Official Report, Commons, Financial Services Bill Committee, 1/3/12; col. 261]-
	in the other place, and therefore the intention behind the amendment that is in my name in this group. I hope that the Minister will now go further than his colleague in the other place, who accepted only the intention behind the amendments, and that he will accept the amendments as they stand. If it would make him feel better, perhaps he could agree to the intention now and bring back a suitably worded amendment on Report.

Lord De Mauley: My Lords, this group of amendments is concerned with the information provided to consumers, so that they are able to make empowered choices and decisions. Amendment 104C seeks to add a new 'have regard' subsection to the list of matters that the FCA must consider in advancing its consumer protection objective-namely,
	"the need to inform and educate consumers with special emphasis on the unavoidability of some risk".
	I agree with the noble Lord that consumers need to understand that there will necessarily always be an element of risk involved in engaging in a financial transaction, and that they must consider carefully their own risk appetite and the ability of their personal finances to absorb any loss, and enter in to any contract with full information. We cannot pursue a zero-failure regime in financial services, and consumers must understand this. The regulator cannot shoulder the responsibilities that consumers should take for their own decisions and actions, but it can take steps-as my noble friend Lord Hodgson said-to ensure that consumers have the best possible information when they make those choices.
	Both financial education-which we spoke of earlier-and effective conduct of business regulation have a role to play in educating consumers about risk. The Money Advice Service will have a key role in improving financial literacy so that consumers understand the difference between available financial products and their uses, what information they should seek out before entering into a contract or transaction, and what rights they have when things do not go to plan. We covered the role of the MAS when we discussed Amendment 104.

Baroness Oppenheim-Barnes: On that point, the majority of those consumers who are more at risk than anyone else from misleading terms are those least likely to benefit from financial literacy tests. They will be properly informed only if this is done in a manner, and with the type of wording, that would be simple to understand, not complicated.

Lord De Mauley: That is right, my Lords. In fact, when we debated the previous group of amendments I spoke about the deliberations that the Department for Education is going through on that exact point, so I thank my noble friend for that.
	The FCA will set the conduct-of-business regime within which firms will operate and the requirements with which they will have to comply. Just as the FSA does today, placing firms under detailed obligations to assess the suitability of products for individual clients, as well as specifying that warnings must be given to consumers who express an interest in buying a product that does not appear appropriate for their needs or their tolerance of risk. In addition, these requirements specify which risk factors must be highlighted in the case of specific products-for example, income withdrawals or the purchase of short-term annuities.
	However, none of this means that it is the FCA that should be required to have regard to the need to educate consumers about the unavoidability of risk. The FCA is not a consumer education body-that is the role of the Money Advice Service-and neither is it an interlocutor between firms or advisers and consumers. So I cannot agree with that amendment.
	The noble Lord, Lord Barnett, asked what an appropriate degree of protection would be. "Appropriate" is used to allow the FCA to differentiate between the different needs that consumers may have. The detail is set out in the FSA's rules and will be transferred into the new FCA's rules. I will not offer to send the noble Lord a copy of them because I suspect they might be quite voluminous, but if he would find it helpful I am sure I could send a reference to that particular point in them.

Lord Peston: Before the Minister goes on to the next amendment, my noble friend Lord Barnett's and my amendment, if I may draw his attention to it, appears in a clause that is headed "The consumer protection objective" and refers to the FCA. How can the Minister make the illogical leap of saying that that does not concern the FCA? It says categorically in the clause that it concerns the FCA; its acronym appears under the consumer protection objective, in the words,
	"the FCA must have regard to".
	It therefore seems entirely reasonable that the FCA should have regard to what my noble friend and I have suggested. You cannot possibly say that someone else should have regard to it, when the FCA is clearly a body that must do so.

Lord De Mauley: My Lords, I hope I have explained that the FCA is doing that through its conduct-of-business regulations and that the issue of education is dealt with in the ways that I have explained.

Lord Peston: As a matter of elementary logic, though, the Minister cannot wriggle away and say that the FCA is doing it some other way. This amendment is about consumer protection and the FCA must have regard to that. I would like an answer to why the Minister will not accept an amendment that says that the FCA must have regard to it in this specific way.

Lord De Mauley: My Lords, I think that I have said that the FCA has regard to it, but I cannot go much further than I have.

Lord McFall of Alcluith: Is this not just part of the muddled thinking that took place at the beginning of this whole process when the word "consumer" was changed and the name became the FCA? Consumer protection lies with the FCA, whether the Minister sees it or not. Given the muddled thinking, and given that the Money Advice Service-which, by the way, was lacerated a few months ago when it went to the Treasury Select Committee-is not a consumer protection body, we need a little rethink. The Minister should take the pills and come back, and then we can get some clarity.

Lord De Mauley: I am sorry that the noble Lord is confused. I do not see the confusion that he does. Perhaps I may move on to Amendments 105A and 106.

Lord Peston: I would still like a rational answer to what I have put to the Minister. The least he can do is to say that he would like to think about it and come up with the right answer. Apart from anything else, it would do him a world of good.

Lord De Mauley: My Lords, I think that I have given the right answer but I am happy to write to the noble Lord, Lord Peston, if I can express it in a way that he might find more acceptable.
	On Amendments 105A and 106, it is important to note that if we are to create the conditions in which consumers can make better choices for themselves, we need to address some of the asymmetries of information between consumers and providers that still prevail in financial services. I think that that is a point that noble Lords are making. That is why the Government added new subsection (2)(c) to new Section 1C, which will be inserted by Clause 5, before the Bill's introduction to the parliamentary process. This provision requires the regulator to consider,
	"the needs that consumers may have for the timely provision of information and advice that is accurate and fit for purpose".
	This provision complements the FCA's new power to require firms to withdraw a financial promotion and disclose the fact that it has done so, as well as a new power to disclose at an early stage to the public that disciplinary enforcement action has commenced against a firm or individual. The FSA will carry out a root-and-branch review of transparency and disclosure on the part of firms and the regulator to be completed ahead of commencement of the Bill.
	I agree with many of the points made by the Committee in terms of the improvements that we want to see, but I do not agree that Amendments 105A and 106 are necessary. I argue, for example, that referring to information being "fit for purpose" is, in modern idiom, a better way of achieving the aims that we all share. "Fit for purpose" is an umbrella term that includes, for example, information being legible, intelligible and appropriately presented. Information could not be fit for purpose if it was not also those things.
	"Fit for purpose" is also broader and allows the regulator to differentiate between the needs of different consumers, to adapt its approach and perhaps to place additional requirements on firms where it considers this necessary. There may be requirements that we cannot anticipate at this point. Using a broad term such as this therefore gives flexibility and allows the regulator to be responsive to changing circumstances and market conditions. Being too exhaustive in the Bill could be unhelpful. However, it is also not appropriate, as the detailed requirements will be set out by the FCA in its rulebook.
	I therefore argue that Amendment 105A is unnecessary, as fit for purpose already captures information being intelligible and appropriately presented. Amendment 106 could restrict the FCA's ability to design a regime on the provision of information to consumers, as "intelligible" is a narrower term than "fit for purpose".

Baroness Hayter of Kentish Town: Before the noble Lord moves off that particular amendment, perhaps I may point out that the provision also uses the word "advice". He has covered only the information that has to be clear, but not the point about access to advice.

Lord De Mauley: My Lords, I apologise if my argument covered only one aspect, but it should be taken to cover both.
	The noble Lord, Lord May of Oxford, to whom I am grateful for his intervention, asked about a duty of care. Subsection (2)(e) of new Section 1C, which is headed "The consumer protection objective", states that providers should,
	"provide consumers with a level of care that is appropriate ... to the ... risk ... [of] the investment ... and the capabilities of the consumers".
	I hope that that is helpful.
	I hope that I have made it clear that the Government are fully committed to improving the provision of information to consumers, and that I have succeeded in convincing the noble Lord to withdraw his amendment.

Lord Barnett: My Lords, I do not think that the Minister has convinced anyone. I think he said that my noble friend Lord McFall was confused, but he was not confused. None of us is confused except about the way that the Bill is drafted. The whole of this section refers to consumer protection objectives. We also have new Section 1G, on the "Meaning of 'consumer'", and new Section 1H. The whole lot should be removed, because we are now told that the MAS will have to deal with it. The Minister has not convinced me, and I hope that we will come back to this at a later stage. For the moment, I beg leave to withdraw the amendment.
	Amendment 104C withdrawn.
	Amendment 105
	 Moved by Lord McFall of Alcluith
	105: Clause 5, page 16, line 38, after "of" insert "ability, disability and vulnerability generally"

Lord McFall of Alcluith: My Lords, I shall speak also to Amendment 136. Amendment 105 insert the terms "ability, disability and vulnerability" of consumers into new Section 1C which is entitled: "The consumer protection objective", as the noble Lord said. Given that only one body-the FCA-is referred to within this section, it cannot be deduced otherwise than that the FCA has a consumer protection objective. That issue has to be cleared up.
	The noble Lord, Lord May, made a very good point about the duty of care. The duty of care issue has been sidestepped by the Government. The Minister referred the noble Lord, Lord May, to subsection 2(e), which states that,
	"those providing regulated financial services should be expected to provide consumers with a level of care".
	Being expected to provide consumers with a level of care is a world apart from a duty of care. That issue has to be debated further.
	I mentioned the terms ability, disability and vulnerability because they are crucial to consumer protection. I shall deal first with the ability to understand. Noble Lords have mentioned that we have seen examples of products being shrouded in complexity. I well remember that back in 2002 I looked into split-capital investment trusts. These products were being sold on a retail basis to individuals, and nobody could understand them. Indeed, I got the architect of the splits in to the committee and asked him a question. Believe it or not, his name was "Dotty" Thomas. I said, "Dotty, did you understand what you were producing?", and Dotty said, "No, I didn't understand". An unmarried 35 year- old woman came to see me. She had put £40,000 away for the care of her mother. Within three months, that £40,000 became less than £400. When looking at consumers and duties of care, it is important that we understand the issues and how products are being sold, even down to the mundane level. We are talking about ability here. Let us take two credit cards, both with an APR of 8%. Given the algorithms involved-we needed to recruit a professor of mathematics from Cambridge-two cards with the same APR can have a 75% difference in payment. Who is on the losing end with complex products? It is the consumer, so the issue of ability is very important.
	The industry keeps telling us that innovation is at the heart of financial services and that if you stop innovation, you stop creativity. Most weeks, I go up and down to Glasgow on a plane. If the pilot said to me when I got on, "Mr McFall, would you like to have an innovative flight to Glasgow today where the plane goes upside down?", I would say, "No. Give us it simple. Get me there". That is what consumers want from financial products: simplicity and what is written on the can about what they get out for every pound that they put in. We do not have that. Paul Volker made the point a while ago in a speech in London in which he said that over the past 40 years there has been only one innovative product in the financial services industry: the ATM. Everything else, you can forget. So when they tell us that we have innovative products, I suggest caution.
	The noble Baroness, Lady Liddell of Coatdyke, mentioned the mis-selling of personal pension plans when she was a Minister. The compensation scheme cost over £12 billion. The money put aside for payment protection insurance, which I was asked by the industry to negotiate with consumers just a couple of months ago, is £8 billion. The LIBOR scandal, according the FT last Saturday, will cost about £20 billion. If we add 20, 12 and eight, we get £40 billion. Let us look at some of the countries that had a GDP of less than £40 billion in 2011: Luxembourg, Cyprus, Ghana and Uruguay are just four I have picked out. The scale of the problem is enormous. We are living in a world where consumers do not have the ability to understand the complexities-and I include everyone here-so we need to do something about it.
	I mentioned earlier that I was asked to chair the Workplace Retirement Income Commission for the National Association of Pension Funds. What people are paying for their pensions is enormous. I note on the Daily Telegraph front page today that fees can halve the value of your pension. When someone puts their money in a pension pot, they do not know what they are going to get out at the end of the day because of the complexity that arises. So the issue of consumer protection and consumers' ability is central to the debate on the Financial Services Bill. As I mentioned earlier, I challenge anyone to understand the ins and outs of their portable defined contribution pension schemes.
	I also mention disability and vulnerability because one of the complaints I got regularly from the good people working in the financial services industry in our banks and building societies on every high street up and down the land was: "John, I am asked to sell the 'product of the month' and I am getting pushed by my bosses to do that. If Mrs Quinn, 75 years of age, comes in, I push the same product to her as I push to her grandson James Quinn, who is 26 and starting out in life. I know in my heart that that is the wrong thing to do". I know a number of people who have resigned from their bank as a result of that, so the vulnerability element is important.
	The asymmetry of knowledge between the consumer and the industry is enormous and we need that balance to be reasserted. I have said to the industry, which has many decent people working in it, that regulators and politicians will not solve this problem because we come to it from the side. The ones who will solve the problem are the ones who are in the industry. And if they solve that problem, if they have that self-regulation, then there will be less need for stricter regulation and there will be the rebuilding of trust and confidence in the industry. This proposed new Section 1C is central to the future of the financial services industry. I regret that the term "consumer" was taken out of the name of the body known as the FCA.
	So vulnerability, ability and disability are central to the issues which confront the industry. If the industry takes that seriously, with a push from the FCA maybe we will have a better future. There is a long way to go but this proposed new section is crucial in ensuring that we get a better financial services industry. I beg to move.

Lord Northbrook: My Lords, I support the views of the noble Lord, Lord McFall, on split-level trusts. When I was a private client investment manager I came across these extraordinary products, which offered marvellous returns. Income shares were offering 8% and capital shares looked very exciting in the forecasts and prospectuses of what would happen if the market went up 5%, 10% or 20%. But the prospectuses did not say that if the market went down 5% or 10% your shares would be wiped out. It seems to me that, for all those vulnerable people, the FCA has to warn of the downside risks of these vehicles.

Baroness Liddell of Coatdyke: My Lords, I support my noble friend Lord McFall in this amendment but I greatly regret the fact that the amendment is necessary. One of the reasons for my regret is the appalling reputation that the financial services industry is earning now as a consequence of the events of the past few years. It is a vital industry for the United Kingdom. It was based initially on the probity of the United Kingdom, which now has to be seriously questioned. It should not be necessary to put into a Bill a duty of care on vulnerable people. It should be a matter of course.
	When my noble friend Lady Hayter began this afternoon's debate, she referred to the issues that have caused such convulsions in the past few months and have led to a serious loss of trust in financial services in general. It would come as no surprise that some particularly vulnerable people, especially the elderly, would nowadays prefer to put their money in a sock under the bed because it is about the only place where it is likely to be safe.
	If we are going to restore the integrity of the financial services industry, we as a Parliament must be prepared to show that we are prepared to speak up for the vulnerable. Those of us whose careers have taken us into the other place have had to deal with constituency cases. Quite frankly, a number of times I have felt like sending for the police when I have had constituents in with instruments that they have been sold, which, in many cases, have taken their entire savings away from them. You get not just the City spivs who you see on television programmes but people who live in a community selling wholly unsuitable products.
	I suspect that the Minister will say that this legislation is not necessary. I urge him to reconsider that. If we do not put the consumer back again at the heart of the financial services industry, we will lose the competitive advantage that I hope we still retain despite the events of the past few years. We have to overstate to convince people that their interests are at the heart of what this country stands for in terms of financial services regulation.

Lord Peston: I support my noble friends, particularly my noble friend Lady Liddell. This takes us back to our earlier remarks today on the need for a professional body for the financial intermediary. I was very disappointed at the way in which the Government did not seem to recognise that as a matter of great concern. As I understand it, doctors have a professional body in the first place and, secondly, they have a code of conduct. Therefore, this sort of thing is not necessary for them because they know that that is how they have to behave. This is true of a number of other professions.
	However, one group of people who claim to be professional-the financial intermediaries-have nothing like this at all. I think I am right in saying that there is no professional body whatever. The Government seem perfectly happy with that. They do not seem to see that they should at least encourage them to set up a professional body with a code of conduct, et cetera.
	My noble friend Lady Liddell puts her finger on it when she says that we really should not be discussing this issue and that it should be taken for granted that the sort of things referred to by my noble friend Lord McFall could not happen. In a decent society, that should be the case. However, it is not the case. One of the great things about this House, until we are all thrown out, is that your Lordships accept their responsibilities, although our successors may not. It is important to draw attention to what responsibilities should exist in society. I believe that the Government should respond positively to my noble friend's amendment.

Lord Stevenson of Balmacara: My Lords, I support the amendment in the name of my noble friend Lord McFall. I declare an interest as chair of the Consumer Credit Counselling Service, the country's leading debt advice and debt management charity. I want to focus in particular on people who struggle with debt, often because they have got into arrears with their credit cards or personal loans and other consumer credit products, but also because of mortgage arrears, rent arrears and, increasingly, fuel and utility debts and council tax.
	CCCS has helped more than 1.5 million people in the last three years and about half of them told us that unemployment or reduced income were the main reasons for their debt problems. People also say that life events such as illness or separation can quickly overwhelm family finances and cause or contribute to mounting debt. What they find is that debt is rarely a problem in isolation. There are nearly always other factors that need to be addressed, including the link between problem debt and depression. Nearly half of CCCS clients said they had been worrying about their debts for a year or more before seeking help from a debt advice provider. Around a third of people said that their debt problems had weakened their relationships or led to a break-up. Nearly half said that debt had shattered their self-confidence to support themselves and their families.
	The pre-crash boom in consumer credit, which peaked in about 2007, also remains a key part of the UK debt narrative. Even after several years of near zero lending, the total outstanding secured and unsecured debt is still some 91% higher than it was 10 years ago-so it is a pretty bad picture. Research for CCCS by the Financial Inclusion Centre concluded that some 6.2 million households are currently either already in financial difficulty or at risk of getting there, and it is going to get worse.
	The IFS estimates that real median household incomes will fall by 7.1% between 2009-10 and 2013-14 as a result of low growth and fiscal tightening, the largest decline since the 1974-77 fall of 7.5%. Unemployment remains at a stubbornly high 8.3%, or 2.65 million people, although it has just reduced. Youth unemployment sits at 22%-more than one in five young workers is without a job. This is particularly worrying as we know that time spent not in employment, education or training as a young adult can have a scarring effect as well as reducing earnings.
	At the same time, we are experiencing an extended period where households are facing rising costs for essential goods and services. Food, fuel and transport costs are rising sharply and we will sooner or later face a rise in interest rates, which are unnaturally low at present. Figures from the Financial Inclusion Centre show that if living costs rise by more than £50 per week, it would double the percentage of households-which is currently 30%-who have no spare cash at the end of the month.
	There is surely sufficient evidence in what I have said that the idea that consumers should be required to take full responsibility for their decisions does not accord with what happens in the real world. My noble friend Lord McFall made this point very eloquently, and we strongly support his idea that in considering what degree of consumer protection may be appropriate, the FCA must have regard to the differing ability, disability and vulnerability of different consumers.
	However, it goes further than that. The FCA has also got to take into account what the CCCS and FIC research tells us about the way people's history and the impact of family issues, illness and relationships interact with their credit arrangements. Families are being squeezed hard at both ends, with incomes and expenditure under pressure. The Bill ought to be amended to reflect less of the theory of caveat emptor and be more reflective of what is happening on the ground.

Lord Sassoon: My Lords, the debate on this group of amendments has been very interesting. However, it has some characteristics of straying into Second Reading territory because it has gone much wider, albeit over very important areas, into questions of broad mis-selling standards in the industry, which we have discussed already this afternoon. Therefore, I will not go over all the points that have been made but stick to the issues that are the focus of the specific amendment, subject only to one general point about the important questions raised by the noble Lord, Lord McFall of Alcluith, on proposed new Section 1C-on the consumer protection objective, which clearly goes to the heart of this-and his observations and questions on proposed new Section 1C(2)(e), which concerns the general principle of care.
	One issue around the drafting that we should bear in mind is that the FCA will be responsible for the protection of retail consumers, but will also have a responsibility for wholesale markets, professional markets and counterparties. The reason behind the drafting of proposed new Section 1C(2)(e) is to make sure that it encompasses both the very strong duty of care that is due to individual consumers, on the one hand, and the fact that between professional counterparties the nature of the duty of care is very different. Indeed, in the terms of this particular principle, there may be no duty of care under this provision if the market is purely professional-it is very different from a consumer product market. It is important to understand that background to the discussion. However, these amendments are very much concerned with protection of the consumer.

Baroness Liddell of Coatdyke: There is some confusion in my mind about what the noble Lord is saying. He is talking about the responsibility and the environment of risk in wholesale markets as against retail markets. Even in wholesale markets, there is now a need for a duty of care. The noble Lord was managing director of financial regulation at the Treasury, so he will be aware that from the time of Barings onwards there has been an issue about the duty of care in the wholesale market, too. I am not saying that it should be equated across the board with the duty of care to consumers, but no one who has watched developments over the past few years can take a laissez-faire attitude to what is happening in wholesale markets.

Lord Sassoon: I am not suggesting for one moment that there should be a laissez-faire attitude. I am merely pointing out that a very different set of parameters has to be used by the FSA, and will have to be used by the FCA, when dealing with different parts of the financial services market. To those who argued earlier that we should not lose caveat emptor, I point out that in professional-to-professional markets, of course there has to be a high degree of integrity. Recently we saw exactly what appears to have been going on in what are fundamentally professional markets. However, that is very different from the duty of care owed in the case that we are talking about, which is of selling products to vulnerable, disabled consumers. Wholly different considerations apply from those that apply in professional markets. I point that out because the noble Lord, Lord McFall of Alcluith, got into this broader question, and as background to the question that we need to come on to, which is whether it is appropriate to include amendments to highlight important issues about disability, ability and vulnerability that address consumer product markets.

Lord Davies of Stamford: I hope that the Minister will think again about this before Report, because he has got it profoundly wrong. There is a duty of care for all clients. Of course, it has different consequences according to the nature of the client and according to their sophistication, capital resources and ability to absorb risk. When Goldman Sachs placed collateralised debt obligations-securitised packages of mortgage loans-with professional clients, they knew that the products were junk, and internal e-mails referred to them as such. They were breaching a duty of care; there is no doubt at all about that. The courts will be looking at this in connection with LIBOR and are very likely to decide that if it were the case that even professional clients were working on the basis of a falsified LIBOR rate, there was a breach of fiduciary responsibility and duty of care. Duty of care is an enormously important term of art. The Minister, this afternoon, is trying to weaken and dilute it. That is an extremely dangerous line to go down.

Lord Sassoon: No, my Lords, I am trying to use duty of care in the precise way in which it is used in FiSMA and the regulations that go with it. There are, of course, all sorts of other considerations that apply, whether it is in the LIBOR market or other markets. However, I am trying to use the term precisely as it relates to this legislation and the regulations under it. If we want to redefine duty of care or anything else as something that it is not, now is not the time to do it. This has been a wide-ranging debate. However, I would like to focus on the amendments themselves, which highlight important issues with much more focus than some elements of the discussion we have just had. The issues concern disability, ability and vulnerability. I fully share the views of the noble Lord, Lord McFall of Alcluith, that the ability of consumers to engage in financial services can be affected by their age, disability or other personal circumstances. These are points that have been made by a number of noble Lords in this debate, albeit that some other points went rather wider.
	The first thing to be clear about is that I disagree with the noble Baroness, Lady Liddell of Coatdyke. It would be nice to be in a world in which these issues did not have to be referred to in legislation at all, but that is not the position I take. I believe that they should be reflected in legislation, and indeed they already are in a number of ways. For example, both the FSA and the Money Advice Service, which we have been talking about, have duties under the Equality Act 2010. The FCA and the PRA will be subject to the same requirements, so the Equality Act also bites on them. Also, under the public sector equality duty set out in the Equality Act, both the FCA and the PRA will be required to assess their rules and processes for their impact on protected groups, and take mitigating action where appropriate. In addition, equality law applies to financial services providers so that firms are required to make "reasonable adjustments" to their services for consumers with a disability under the Equality Act, depending on the nature of the product, the barrier and the size of the business. So there is indeed a body of law that goes very much to the points which the noble Lord, Lord McFall, makes.
	Then there is the question of monitoring compliance by the industry with equality law. This is not a job for the FCA or the PRA. It is for the Equality and Human Rights Commission, as the regulator responsible, to enforce the law, and it indeed has the powers to do that. These powers include helping individuals with their legal cases and taking legal action against organisations that appear to have broken the law.
	Amendment 136 specifically concerns the regulatory principle concerning consumer responsibility to which the PRA and FCA must have regard in discharging their general functions; and through Amendment 105 the noble Lord wishes to ensure that the FCA, in determining what an appropriate degree of consumer protection is, has regard to the way in which certain consumers may need extra help and protection. These issues are reflected in the FCA's proposed principles-based approach to regulation, which is designed to ensure that firms adapt their approach depending on the needs of the customer. Instead of having myriad detailed rules and requirements that focus on different degrees of vulnerability, disability or other personal circumstances, requirements on firms will focus clearly and unequivocally on the overarching principle that firms need to take account of their customers' needs and treat them fairly.
	This builds on the FSA's current approach. For example, principle 7 of the FSA's Principles for Business states:
	"A firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading".
	In setting penalties for the failings of firms, one key aspect the FSA considers is,
	"whether the breach had an effect on particularly vulnerable people, whether intentionally or otherwise".
	There are examples of where the FSA has taken very significant action. I will cite only one, but I am sure the noble Lord is familiar with it. Late in 2011, the FSA fined NHFA-a subsidiary of HSBC-£10.5 million for mis-selling products to elderly customers. The firm sold asset-backed investment products to elderly people wishing to fund their care home costs, but in fact many of them were not expected to live beyond the period for which it was recommended the products were held. I could also cite cases in relation to the Bank of Scotland and Swift 1st Ltd, so the FSA has been on the case.
	The principle that a customer with greater needs should be better protected or offered more support and assistance is clearly enshrined in the regime, but it would not be appropriate to take a more detailed approach, for two reasons. First, we would not want the FCA to cut across or duplicate the efforts of the Equality and Human Rights Commission in considering what circumstances might need special care, and how they should be accommodated. The current approach strikes the right balance of setting a high-level framework with requirements directly imposed on firms by the Equality Act and, on the other hand, with discretion for the FCA to impose more detailed requirements as necessary to ensure appropriate consumer protection.
	Secondly, I do not think it is right to list all these matters here. Again, it is potentially duplicative, but more importantly it also risks being incomplete. For example, we might legitimately add age, gender or geographical location-issues which I believe have been raised in previous debates on this Bill-to the list already proposed in the amendment, but where would we stop? I believe there are sufficient powers there. We will come on in due course to the new product intervention powers, which are important in this context compared with what the FSA has at present. Although we will no doubt come to them in detail in due course, the product intervention powers in new Sections 137C and 138M, which mean that in extreme cases a product could be banned with immediate effect, are also additional important safeguards to back up the general principles and approach which I have outlined.
	I hope that I have made it clear that the Government take these issues extremely seriously. Unfortunately we cannot and should not rely on people doing the right things, which is why we have the various provisions in the equality legislation as well as the provisions for the FCA-provisions that will be tougher on intervention powers than the powers that the FSA currently has. I therefore invite the noble Lord to withdraw his amendment.

Lord McFall of Alcluith: My Lords, in withdrawing my amendment I express my disappointment with the Minister's response. Just to illustrate that individuals in this House are up to date with electronic technology, I can say that I took advantage of looking up the meaning of "objective" in Dictionary.com, because that is in bold at the top of the paragraph we are talking about. "Objective" means,
	"something that one's efforts or actions are intended to attain or accomplish".
	In other words, it is the purpose, the goal or the target of what we are to achieve. I submit that there is nothing more comprehensive than that. Therefore, we do not stray away from the subject; this is very germane to the subject. There is still disappointment in the FCA being expected to attend something rather than having a duty to attend. Tonight, we expect to get to a particular clause before we adjourn at 10 o'clock, but the consequence of not getting that far is that we take it on the next day. In other words, the consequences are not very great. There is a difference between that and a duty.
	I submit that the Minister, for whom I have great respect, has muddled thinking on this. I wish that he would look at this again so that we can come back on Report to get clarity. Besides me, quite a number of people cannot understand what the Minister is trying to achieve here. I beg leave to withdraw the amendment.
	Amendment 105 withdrawn.
	Amendments 105A and 106 not moved.
	Amendment 106ZA
	 Moved by Lord Lucas
	106ZA: Clause 5, page 16, line 43, at end insert-
	"( ) The general principle that consumers should have to give informed consent to the use of their personal data by a regulated financial institution, and in particular to the transfer of such data into or out of such an institution when that institution is part of a group of companies whether that group is a qualifying parent undertaking or not, and that it should be possible for such informed consent to be easily and effectively withdrawn."

Lord Lucas: My Lords, the amendment concerns a subject raised by the noble Lord, Lord Whitty, at Second Reading. With his consent, I raise the matter now in his absence.
	The issue of consent to the use of information on the internet is greatly confused at the moment. We have the principle of caveat emptor, as far as possible; we have a set of data protection regulations which are of variable application; and we have a daft system doing the rounds at the moment under which every website pops up with the message, "Can we use cookies?", to which you answer, "Yes", because the website will not function without that. That is a complete waste of time which has been foisted on us by Europe.
	The question raised by the noble Lord, Lord Whitty, is interesting and I shall be interested to see where the Government find themselves. When you have a regulated institution with financial data on people, under what circumstances is it allowed to share those data with other bits of the same company which are not regulated? This may apply to Tesco with all the data which it has on Clubcard. Is the retail side of Tesco allowed to look at what people are doing in their bank accounts and to understand what they should be marketing to them? Vice versa, is the banking side of Tesco allowed to look at all the Clubcard data and say, "Hang on, this guy looks as though he is going bust because he is starting to buy cheap orange juice, so we really ought not to be offering him the degree of credit that we are". If we are to allow such sharing, what degree of information should be offered to consumers about what is happening? There is a standard practice on the internet-I rather suspect that we have all done it-where we are presented with a little form saying, "Have you read the agreement? Tick 'yes'", and the agreement is 154 pages long. As it is not really clear where the changes are from the previous one you signed, you tick "Yes" because you want to use the thing. You sort of trust the people you are dealing with.
	Are we in the territory where the consent to share information will be hidden away in that kind of automatically signed agreement on the web, or are we in the territory where things would have to be made clear in the preamble to the consent form that this sort of sharing was being permitted and that no disadvantage would be incurred by the customer if they refused to share? I find this a puzzling area and I shall be very interested to know what the Government intend that the FCA should do. I beg to move.

Baroness Hayter of Kentish Town: My Lords, the British banking market is changing, thanks, partly, to the ongoing regulatory reforms, as new competitors enter the market. Clearly, that new competition is very much to be welcomed. Consumers need greater choice both for themselves and to drive up standards. However, we should be aware, as the noble Lord, Lord Lucas, has spelt out, that potentially some of the new entrants to the financial sector happen to possess a large amount of data on their customers from the non-banking activities. Therefore, it will be important for safeguards to be put in place to prevent any abuse of that information.
	Clearly, supermarket banks own some of the largest consumer databases in the world, with item-level purchase data on each of the millions of members of their loyalty card schemes. Should that information be used by the banking arms of those conglomerates, it would clearly raise concerns for consumers about their personal privacy and about the potential for misuse. The concerns are fairly obvious. What about invasion of privacy? A consumer's lender will know everything about what they had purchased and when. For example, imagine that a bank learnt from the supermarket side when a consumer started to buy cheaper food, they would know exactly when payday loans might be welcome. Similarly there is a possibility of the use of that ordinary supermarket data as a credit rating mechanism.
	Loyalty scheme operators know an enormous amount about all of us. I understand that Clive Humby of dunnhumby, the Tesco subsidiary which manages Clubcard, has boasted that, of the customers who tend to buy only convenience meals, Tesco knows exactly which ones are shift workers by the time of day when they purchase those convenience meals. I assume that means Members of your Lordships' House who shop at 10 o'clock at night. The company also tends to know who the students are by the sort of things that they buy. Recently, in the States, there was an example-not in the banking area-of a supermarket having seen that a woman was buying vitamin supplements, lotion and hand sanitisers, and working out that she was pregnant and then sending her some information about that before she had got around to telling her parents. That is different from the banking side, but now that it will be easier for some of these non-financial firms to purchase banks there are worries about the spread of information and whether it could leak across.
	Behind the amendment moved by the noble Lord, Lord Lucas, is the desire for some assurances that guarantees will be put in place to ensure that there is a firewall around any loyalty club databases to prevent a spreading across to the offer of financial services. My noble friend Lord Whitty raised the same subject during the Second Reading debate. We want to encourage new entrants into the banking world to give consumers a better deal, but we need to ensure that there are protections and safeguards to prevent the abuse of personal data and that there is perhaps some oversight mechanism.
	I assume that the second amendment in this group is not being discussed but perhaps the Minister will nevertheless respond to it.

Lord Sassoon: My Lords, I shall respond to the amendment that has been moved but I shall not respond to the amendment that has been not been addressed. Amendment 106ZA seeks to add to the list of matters to which the FCA must have regard in advancing its consumer protection objective. The new "have regard" proposed by my noble friend focuses on data protection, as he has explained, and specifically would require the FCA to consider the issue of consumers having to give informed consent in order for their data to be shared, in particular within a group of companies which includes a non-financial services institution.
	Of course, I agree that consumers should have full knowledge about what is being done with their data at all times and have to consent to any sharing of them. I will do my best to reassure the Committee, as I think it is fairly clear, that there is already legislative provision in place to deliver what my noble friend wants to achieve and that this applies whether or not we are talking about different entities-because it is essentially a legal entity test-within a banking group or different entities within a supermarket group. The bank within a supermarket group is bound to be in a different legal entity from the supermarket operation itself. The same considerations apply whether within a banking group, within other financial services groups or within a supermarket group.
	The ability of a subsidiary to share personal information about its customers, either with the parent company or with another member of the group, is already regulated by the Information Commissioner under the Data Protection Act 1998. It is legislation that applies to a financial services firm in exactly the same way as it applies to a supermarket or any other data controllers. If a financial services firm has breached a customer's rights under the Data Protection Act-for example, if it has used the customer's personal information unfairly, for a reason that is not the one for which it was collected, or without proper security-then the right course of action is for the customer to complain to the firm and then to the Information Commissioner. The Information Commissioner has the powers to force compliance with the law.
	The FCA will not, therefore, be the first line of defence in the area of data protection. It is important that we do not blur the lines of responsibility between a financial services regulator and the Information Commissioner, who, as we have seen through numbers of cases, whether in financial services or in other areas, is a regulator with teeth. The case in 2007 of Nationwide is an example of the Information Commissioner taking aggressive action. In support of that, the FSA will take action where appropriate. The Information Commissioner is the first line of defence, but if a financial services firm were to do something reckless, such as losing a laptop with consumer data on it, then it will be fined, as Nationwide was fined £1 million in 2007.
	We have the Information Commissioner as the first line of protection to make sure that information cannot leak from one entity to another within the group without the informed consent of the consumer and that the data within the entity are properly used in the way I have suggested. However, as a second line of defence, in areas such as the one that I have described, of the loss of a laptop, the FSA-and in future the FCA-will have important supporting powers. Therefore, I would suggest that this "have regard" is one that is not necessary or appropriate and might raise false expectations about the responsibility of the FCA in an area where there is a regulator with proven ability to come down hard on those institutions that abuse consumer data. I ask my noble friend to withdraw his amendment.

Lord Lucas: My Lords, I am very grateful for that explanation. At this stage, it is exactly what I was hoping for. I beg leave to withdraw the amendment.
	Amendment 106ZA withdrawn.
	Amendment 106A
	 Moved by Lord Sharkey
	106A: Clause 5, page 17, line 2, at end insert "and having regard to the general duty to provide those services honestly, fairly and professionally in accordance with the best interests of the consumers in question"

Lord Sharkey: My Lords, I shall also speak to Amendment 138A. Amendment 106A adds to what the FCA must "have regard to" when considering the degree of consumer protection. It adds the requirement to have regard to the general duty of providers of financial services,
	"to provide those services honestly, fairly and professionally in accordance with the best interests of the consumers in question".
	Amendment 138A adds to the regulatory principles to be applied by both the PRA and the FCA. It adds the principles that,
	"authorised persons should act honestly, fairly, and ... in accordance with the best interests of consumers who are their clients",
	and that,
	"authorised persons should manage conflicts of interest fairly, both between itself and its clients and between clients".
	These provisions, or something very like them, already exist as FSA principles 6 and 8 in section PRIN 2.1.1 of the FSA Handbook, but crucially those are principles and do not have the force of law directly. Perhaps 30 years or so ago, that would have been a satisfactory situation. If the culture and current practices of our financial institutions were robust, morally sound and possessed of a sense of the common good then the amendments I propose would probably not be necessary. However, the culture and current practices of many of our financial institutions are not robust, not morally sound, and certainly not possessed of a sense of the common good.
	As the noble Baroness, Lady Liddell of Coatdyke, said an hour or so ago, there have been numerous scandals. There was the mortgage endowment scandal, for example. There was the selling of precipice bonds to pensioners. There was the payment protection insurance scandal. Most recently, there was the mis-selling of interest rate swaps to SMEs. Every day seems to bring news of yet another gigantic scandal. Yesterday HSBC apologised to the US Congress for, among other things, breaches of US anti-money-laundering regulations and poor record keeping. It turns out that 41% of the bank's accounts in the Cayman Islands had no customer information attached to them at all. Senator Levin described the bank's culture as "pervasively polluted".
	It is no wonder that confidence in financial institutions has fallen most dramatically here in the UK. The recent Ernst and Young survey on global consumer banking reports that 63% of UK consumers say that their confidence in the banking system has fallen. That is the highest fall in Europe, and higher than in the USA. It seems to be the case that statements of principle promoted by the FSA no longer command either the respect or the compliance of some of our largest financial institutions.
	Over the past few weeks, there has been much public discussion of the moral and cultural failures in significant parts of our system. I do not believe that these failures can be addressed by exhortation. I believe it requires legislation to begin to change these moral and cultural failures, and to encourage the emergence of more responsible and ethical behaviour. I do not believe that we can rely on the banks to change in an appropriate and timely way without specifying what some of those changes should be. That is what these amendments are designed to do, by proposing to put into the Bill what is essentially a duty of care-not, perhaps, the most popular concept this afternoon-for the financial services industry in respect of its dealings with ordinary consumers. We may regret that it has come to this, but it has. It is plain that our trust in much of our financial system to behave ethically was grossly misplaced. These amendments try, in some small way, to correct some of that. I beg to move.

Baroness Drake: My Lords, Amendment 107 is in my name. Bob Diamond said in November 2011 at the "Today" programme lecture:
	"Our culture must be one where the interests of customers and clients are at the very heart of every decision we make; where we all act with trust and integrity."
	This amendment puts that principle in the Bill, by adding to the FCA's consumer objective that it must have regard to the general principle that,
	"where consumers properly repose trust in a firm's discretion and are vulnerable to the exercise of that discretion, the firm has a duty to act in the consumer's best interests".
	That is simply what millions of people want, and they will not understand if it is denied to them. The basic principle is simple: if you have discretion when looking after someone else's money, the starting point should be that you act in that person's or that client's best interests.
	I anticipate that the Minister will argue against the amendment, citing the fact that current FSA rules already say that firms must,
	"pay due regard to the interests of its customers and treat them fairly",
	but paying due regard is not enough to rebuild trust in the industry, and experience shows us that it falls short of any kind of duty of care. Firms may not get every decision right on every occasion and risk will not go away, certainly in investments, but firms should at least be able to demonstrate that when they exercised their discretion and took a decision, they believed that they were acting in the client's best interests. The Government have expressed a preference for the FSA rules to lay out a specific, clear, focused and transparent set of duties on firms, but rules are geared to achieving compliance rather than changing behaviours. There must be a guiding principle to inform the content of those rules-the duty to act in the consumer's best interests. People in positions of trust in financial companies have to change their behaviour. We simply cannot carry on the way we are.
	The FSA is attributed with the comment in FTfm on Monday 16 July that,
	"fiduciary duties are more of an aspect of common law rather than something established by its rules and regulations".
	That basically amounts to the FSA confirming that under the existing proposals it does not see it as part of its remit to uphold the standard of protection that the amendment proposes. Hence, that is a very compelling argument precisely for this amendment. Others will argue that the amendment imposes a new obligation on firms and that it is not a reasonable standard to ask of a commercial entity. I am not sure that it imposes a new obligation but it certainly makes it explicit. In oral evidence to the Joint Committee Martin Wheatley, CEO-designate of the FCA, said that,
	"firms ... have responsibilities in terms of appropriateness, in terms of their conduct and in many cases they also have a fiduciary responsibility to clients".
	The wording of the amendment reflects legal principles in that the Law Commission's summary of the characteristics of a fiduciary relationship are discretion, power to act and vulnerability.
	The principle in this amendment is not inconsistent with a commercial entity's desire to make a profit: what it prevents is unauthorised profit or profiteering at the expense of clients. Firms can continue to have and pursue their own interests, just not at the consumer's expense. Conflicts of interest need to be properly managed. Again, some may argue that a duty to act in the consumer's best interest is not the right standard to impose across the board between providers and consumers, but the amendment would not apply across the board. It would apply where consumers have a particular relationship with providers that relies on a firm's exercise of discretion and they are vulnerable to it.
	In their response to the Joint Committee report, the Government inserted the new principle in the Bill, to which the FCA must have regard, that,
	"those providing regulated financial services should be expected to provide consumers with a level of care that is appropriate".
	The amendment gives clarity to what is an appropriate level of care where trust and discretion are involved to set a higher standard of protection. A duty to act in the consumer's best interest is clearer in its requirements to avoid and manage conflicts of interest. Where a client reposes trust in the firm's discretion and is vulnerable to the exercise of that discretion it is not enough to balance competing interests. Rather, the firm must ensure that conflicts cannot damage clients.
	Separating retail and wholesale banking is part of the solution to addressing financial stability and integrity, but it is not the whole answer. Millions of ordinary people are saving, directly or indirectly, through the capital markets and are vulnerable to the exercise of discretion by a long chain of intermediaries. Legislation must protect not only the integrity of retail banking but the interests of the savers in so-called casino banking. "Casino" may be appropriate for the behaviour of some intermediaries-the fund managers, traders and others-but it is not the underlying purpose of the investment market. As auto-enrolment into workplace pensions gets under way in October, millions more people will be added to those saving through these markets, many of them low and modestly paid workers. Even before auto-enrolment, which will bring billions more into these markets, £380 billion is invested in DC pension schemes in the UK. That excludes the billions in DB schemes, investment ISAs and other products and with-profits investments.
	The Centre for Policy Studies has just published Michael Johnson's report Put the Saver First, which I have just read. Although I may not agree with all of his recommendations, it makes an excellent contribution to the debate as to why the financial services industry is mistrusted. It states that the financial services,
	"industry would appear to have forgotten that customers are providing the scarce resource upon which the whole of the ... industry relies: their savings capital ... Essentially, the industry should put the customer at the centre of everything it does ... It is clear that many people are investing in products they do not fully understand, which are governed by a jungle of complex rules and tax regimes that, collectively, almost nobody understands. Savers are therefore putting their trust in the industry, and they need to be protected in situations in which the industry has a knowledge advantage. For almost all investors, this excludes very little. A less subtle description is that regulation should protect investors from the industry's self-interest, its inefficiencies and, in some cases, its predatory instincts".
	In an investment industry with a long chain of intermediaries, the saver exercises virtually no influence over many key decisions. Indeed, at the behest of the Government, Professor John Kay is examining the lengthy investment chain and the implications for efficient capital markets. There is no shortage of evidence of misalignment and conflicts of interest between the consumer and the providers. The interests of the end users of capital markets-the savers and investors and those seeking capital-need to be reasserted. That in turn will support UK economic interests.
	The Bill should address the cultural issues by reasserting the appropriate nature of the relationship between provider and consumer, where the latter is vulnerable to the exercise of discretion by the former and where financial services have too often been seen as controlling the real economy rather than supporting it. The LIBOR and EURIBOR rate-fixing scandal made many organisations furious because it subverted the integrity of a pricing mechanism at the heart of the capital markets. Promoting consumer engagement and empowerment is of course welcome, but it cannot be a substitute for greater clarity about the roles and responsibilities of each player in the investment chain.

Lord Stoneham of Droxford: My Lords, I am pleased to speak in support of Amendment 107, which was spoken to so well by the noble Baroness, Lady Drake, and I also have sympathy with the other amendments in this group tabled by my noble friend Lord Sharkey.
	My personal interest in the success of the coming revolution in pension policy through auto-enrolment makes me especially keen to support this group of amendments. We have to rebuild trust in the financial services sector, where culture is currently suspect, to encourage greater pension savings. An explicit "consumer's best interest" principle in the Bill would be a powerful tool for the FCA to ensure consumer interests are protected. Fiduciary duty requires those entrusted with other people's money to put those customers first and provide appropriate stewardship, not to exploit their position to make an unfair profit or to get involved in undue risk where it is inappropriate. If duties were properly observed and enforced, it would provide a sea change in the prevailing culture of the financial services industry and lead to a much better outcome for consumers.
	The problem is to get the balance right between consumers and firms. Concern was expressed in pre-legislative scrutiny that the draft Bill was unbalanced, enshrining the principle that consumers are responsible for their decisions but not placing an equivalent responsibility on firms. The new principle, inserted by the Government, to which the FCA must have regard, is that,
	"those providing regulated financial services should be expected to provide consumers with a level of care that is appropriate having regard to the ... risk involved",
	and the consumers' capabilities.
	The question is whether we are prepared to leave this so vague and open to interpretation that it would provide very weak guidance. With respect, it leaves open the question that it was intended to resolve. For those managing long-term savings, the problem is precisely that there is confusion and misinformation about the appropriate level of care. Explicit confirmation that those managing other people's money must act in their best interests would be a clear and effective way to get the balance right in the equivalent responsibility for consumers and firms.
	When the Bill was considered in the other place, the Minister argued on this clause, as amendments were submitted for an explicit reference to fiduciary duty in the Bill, that:
	"Customers should not have to dust down the old statute books and dig out their dictionaries ... to identify what standards they can expect from providers".
	He said that it was better for the FCA to set out clear and specific standards via its rules. He also said that he was not convinced that fiduciary duty,
	"is the right standard to impose across the board between providers and consumers".-[Official Report, Commons, 1/3/12; cols. 271-72.]
	Our Amendment 107 tries to address these objections. First, it does not rely on the term, "fiduciary duty"; it simply enshrines the common-sense principle that underpins these duties. Where consumers rely on a firm's discretion, that discretion must be exercised in those consumers' best interests. Secondly, it would not supersede or restrict the specific standards to be laid down in FCA rules, but rather provide an overreaching principle that the FCA should bear in mind when setting those rules. Thirdly, it would not apply across the board but only where appropriate, particularly where consumers have a relationship with providers that justifies a best-interests standard. I hope that the Minister will closely consider this matter and strengthen Clause 5 by accepting these amendments.

Baroness Hayter of Kentish Town: My Lords, this is perhaps the most important debate today-perhaps the most important of the whole clause-because these amendments are about requiring savings to be managed in the interest of savers, not financial intermediaries. As we have already heard, the Joint Committee recommended that the Bill,
	"place a clear responsibility on firms to act honestly, fairly and professionally in the best interests of their customers".
	That should not be too much to ask. As my noble friend Lady Drake said, the Law Commission confirmed that where firms are managing other people's money, or giving financial advice, they have fiduciary duties to act in those people's interests, both individuals and institutions such as pensions that represent, after all, large numbers of individual savers. That fact is, sadly, not generally reflected within the industry. Because these are common-law duties, as we have heard, they do not form part of the FSA's regulatory approach, hence they need to be repeated in the Bill, partly to comfort consumers that the Bill does not trump these common-law protections, partly to give the FSA a powerful tool to ensure that consumers' interests are protected and partly to ensure that this duty of care is absolutely entwined in the industry's DNA, where it has, until now, been lacking.
	It is not just me. Michael Johnson of the Centre for Policy Studies, who I have to explain does not share my political leanings, has written:
	"The ethos of fiduciary duty should be resuscitated across the industry".
	Like the noble Lord, Lord Stoneham, I have the example of pensions in mind.
	Amendment 107 seeks to enshrine the principle that where consumers rely on a firm's discretion-we must remember, that they are often part of a long chain, as my noble friend Lady Drake said; they often see or know nothing, as with the LIBOR adjustments-then the firm's discretion must be exercised in the consumer's best interests. Inter alia, that means not exercised so as to pump up bonuses or shareholder value.
	As we have heard, the Joint Committee called for the FCA to be empowered to hold firms to account by upholding this duty to act in clients' best interests. The response from the Government was, unfortunately, insufficient, as my noble friend Lady Drake said, in that they only asked the FCA to have regard to the principle that there should be a level of care appropriate to the consumer involved and that the need for advice should be accurate, timely and fit for purpose. That is vague, in the words of the noble Lord, Lord Stoneham, but it also does not go far enough. Nor does the FCA's mandate to promote effective competition in the interests of consumers, welcome though it is.
	Competition is fine in a perfect market where consumers have perfect information, but not for these credence goods whose outcomes might not be known for 20 years; not when terms are used which are meaningless to the client but not the seller; not where products are bought to cover risks about which any normal consumer can have little depth of understanding; not where prices are opaque, so that shopping around is impossible; and not for non-repeat purchases, where none of the consumers can ever become savvy.
	Yes, the Bill provides for improved consumer protection via the product intervention, the transparency and disclosure advances, but product intervention is following a failed product, by which time purchases will have been made and disclosure rules still do not compensate for how much more the provider knows about risk than does the individual consumer. We welcome the requirement for the FCA to have regard to consumers' different experience and expertise, and their need for information that is timely, accurate and fit for purpose, but we want firms themselves to have to sign up to and enforce a duty to act in the client's best interests, along the lines of Amendment 138 in the names of the noble Lord, Lord Phillips, and the noble Baroness, Lady Kramer, that regulated persons and bodies should assist consumers in taking responsibility.
	The duty to work in the client's best interests needs to be in the DNA of every firm, not simply a regulatory intervention power by the FCA. Just as a solicitor's client charter says that he will put the client's interests first-and, incidentally, explain what the costs are likely to be-so there should be an expectation on anyone handling clients' money. To quote Michael Johnson again,
	"all pension schemes should be subject to fiduciary-like obligations".
	I believe that these amendments are central to whether the Bill works for consumers, the individuals on whose savings much of this industry is built. Consumers should be able to trust those who advise them, who care for their money and provide financial services; they should be able to trust that the client's interests will always come first.

Lord Sassoon: My Lords, there is a lot to deal with because of the number of amendment in this group, although they all broadly cover the same ground. I feel that if I err on the side of treating them in short order I will not do justice to each individual amendment, but if I deal with each in turn I risk going on too long. I think that in this case I should probably err on the side of doing justice to these amendments, because each is somewhat different.
	The amendments all focus on the need for firms and advisers to act honestly, fairly and professionally in the interests of consumers. This follows a recommendation from the Joint Committee in its pre-legislative scrutiny of the Bill. I doubt that anyone in this Committee would question the need for such integrity in firms' dealings with their customers-certainly, they have not done so in this debate-but I do not believe that the approach suggested by the amendments would help secure the outcome intended.
	I can assure noble Lords that we carefully considered the wording suggested by the committee, but concluded that the best way to address the concerns underlying its recommendation was to modify the matters to which the FCA is required to have regard, thus reflecting what firms should already be doing, rather than to seek to impose directly some kind of high-level duty on firms.
	The consumer protection objective ensures that, as the FCA acts to protect consumers, it will be required to have regard to the level of care that firms should provide to their customers, based on the level of risk involved and the capability of the customers. This is set out in new Section 1C(2)(e). The phrase "level of care" is wide enough to ensure that fairness, honesty and professionalism, and certainly acting in consumers' best interests, are all taken into account. I am not sure how the amendments being proposed would add to the existing provisions; in fact, they may narrow the definition of "level of care that is appropriate", which I am sure the Committee would not wish to do.
	I thought that I heard my noble friend Lord Sharkey refer to the enforceability in law of principles of regulation. I make it absolutely clear that principles of regulation are indeed enforceable in law. It was those general principles which the FSA used to pursue, for example, the Barclays LIBOR case, and it will be exactly the same for the FCA and the PRA.
	Amendment 106A would create a "general duty" for firms to act in the way that the amendment suggests. Such a duty would be so high level and vague as for it to be very difficult for firms to know what was expected of them, and it is far from clear what, if anything, such a duty would add to the contractual requirements and terms that already protect clients and consumers. Such a vague duty would also be difficult for consumers or the regulators to enforce. It is the Government's position that it is clearer, better and safer for consumers for the FCA to make a body of clear, specific and targeted rules that give both firms and consumers an understanding of what level of care is expected, and that is the approach that we have taken.
	Amendment 136A would add to the "senior management" regulatory principle an acknowledgement of the requirements for senior management,
	"to act honestly, fairly and professionally".
	As with Amendment 106A, I do not believe that this addition would benefit consumers. Both the PRA and the FCA will have powers, under Sections 56, 63 and 64 of FiSMA through amendments made by Clauses 11 and 12 of this Bill, to take action in relation to a failure on the part of an approved person to act in a fit and proper manner in performing functions in relation to regulated activities. Therefore, there is already a perfectly clear and sufficient mandate to ensure that, if either regulator judged an individual to be acting in a way that was not honest, fair or professional, they would be prompted to take robust action against them, up to the removal of their status as an approved person. We do not need extra provision to make this happen. I hope that I can assure the Committee that the amendment is not required.
	Amendment 108C would require the FCA to have regard to,
	"the general principle that firms or advisers must act honestly, fairly and professionally in the best interests of their customers".
	We agree that they should, but the amendment would not guarantee that they would. It would not establish any duties on firms additional to the detailed rules made by the regulators. It would instead add something to which the FCA would have to "have regard" when considering what was an appropriate level of consumer protection. As I have already said, new Section 1C(2)(e) already deals with the point.
	Amendment 138A would include the same phrases, "honestly, fairly and professionally" and "best interests of consumers" in the list of principles to which both regulators will have regard when carrying out their general functions. In addition, it would add the principle that,
	"authorised persons should manage conflicts of interest fairly, both between itself and its clients and between clients".
	While I agree with the sentiment of both of these suggested additions, I have to say that they are again unnecessary. I have already explained why I believe that the wording referring to the expected level of care in the FCA's consumer protection objective is the best way of ensuring this.
	On the specific issue of conflicts of interest, if firms were not appropriately managing conflicts of interest, it is unlikely that they would be providing an appropriate degree of protection to consumers. In those circumstances, the FCA would have very clear powers to act. I am not convinced that the amendment would give the FCA power or authority that it does not have already. I thank noble Lords for tabling these amendments and assure them that I understand their concerns. However, in advancing its consumer protection objective, the FCA will already be focused on ensuring that firms treat their customers fairly, honestly and professionally and act in their interests.
	Amendment 107 would include in the list of things to which the FCA must have regard when considering what degree of consumer protection is appropriate a firm's responsibility to act in consumers' best interests where the consumer has reposed trust in the firm. I should recognise that the noble Baroness, Lady Drake, made a valuable contribution to the Joint Committee that considered the draft Bill. I am pleased to see that Amendment 107 in her name continues that input into these Committee proceedings.
	I am sure that we are all again in agreement that financial services firms should always act in the best interests of their consumers. It is an issue which it is important to discuss, as I shall go on to do, but, as the noble Baroness would expect, I argue that Amendment 107 would not ensure the outcome that we all desire. Instead, it would add something that the FCA would have to consider when deciding what was an appropriate degree of protection for consumers. It would require the FCA to proceed on the basis that there is a "duty" for firms to act in their consumers' best interests where consumers place trust in those firms. Acting,
	"in the consumer's best interests",
	is a noble aspiration, but defining what this means is difficult, particularly in the context of the FCA determining what level of consumer protection is appropriate under such a duty.
	The best way to ensure that firms act in their customers' best interests is not through a general duty on firms. The noble Baroness acknowledged that there would be a difference of view about whether the amendment would impose a new duty on firms. Again, she will not be surprised that I would argue that the analysis we have done suggests that there is a new general duty here, but we think that the better way to do it is through FCA rules and principles in support of the consumer protection objective-rules that must be clear, specific and enforceable, and that act to protect consumers against firms that do not or may not act in their interests. Therefore, while I disagree with the substance of the amendment, I support its driving principles. This is why we are creating the much more focused conduct-of-business regulator, the FCA, which will have a very clear consumer protection objective and the suite of new powers to protect consumers that we have discussed.
	Amendment 108D would add a further factor to which the FCA would be required to have regard when considering what level of consumer protection was appropriate. It states that,
	"discretionary asset managers will ordinarily owe fiduciary duty to their clients".
	I think we have already had one dictionary definition of "fiduciary duty" in this Committee sitting, but let me quote the Oxford Dictionary of Finance and Banking, which says:
	"Persons acting in a fiduciary capacity do so not for their own profit but to safeguard the interests of some other persons or persons".
	The concept is plainly sound and I understand the concerns that are raised here. Firms engaging in discretionary asset management take on the responsibility to manage the assets of their clients on behalf of their clients, so do asset managers owe a fiduciary duty to their consumers? I will answer with my best understanding, as a non-lawyer, of the common-law position: sometimes the answer is yes and sometimes the answer is no. It will depend on the facts of the case. Such is the beauty of our common law.
	Adding this amendment to the list of factors to which the FCA must have regard when considering what is an appropriate level of consumer protection would, I am advised, serve only to muddy the waters. It would require the FCA to engage with some rather arcane provisions of common law to ascertain whether or not a fiduciary duty exists. If a fiduciary duty were found to apply, the FCA would then have to ascertain how that duty applied to the facts of the case. What if the fiduciary duty were insufficient to protect consumers? This amendment would cast doubt on the ability of the FCA to impose obligations on asset managers that go beyond the standards required by such a fiduciary duty.
	Comparing this amendment with the effect of the Bill as currently drafted, one finds that the wording "level of care" is broad enough for the FCA to consider what standard of care authorised persons should provide to their consumers. I prefer this plain English and straightforward approach to one that resorts to concepts from common law, which are both imprecise in terms of scope and inflexible in terms of their application.
	Again, I fully understand what is being got at here, but I believe that this amendment would, no doubt inadvertently, take us into difficult areas of common law as opposed to common English, which the Bill currently has in its favour.
	Similarly, Amendment 138B seeks to require both regulators to have regard to the regulatory principle that,
	"where appropriate, authorised persons should have a fiduciary duty towards the consumers who are their clients".
	I have set out why I believe that assuming or requiring a fiduciary duty for asset managers in particular towards their clients is problematic and may not give the levels of protection that consumers should expect. We have seen that the benefits of such a duty would not be clear-cut, and adding this principle to the regulatory principles of the PRA as well as the FCA would again just muddy the waters.
	The FCA has a clear mandate to ensure that the consumers of all authorised persons receive an appropriate level of protection, as determined by their particular requirements and circumstances, without the need to assess whether that level of care in fact constitutes, or should constitute, a fiduciary duty. This amendment could introduce a burdensome process for the regulators in determining whether a fiduciary duty was appropriate, without in any way increasing what is really important-the care that a consumer would receive, which is the outcome that we want.
	Amendment 138 would insert the principle that regulated firms should,
	"reasonably assist consumers in taking responsibility",
	for their decisions in the form of a factor to which both the PRA and the FCA would have to have regard when carrying out their general functions. I agree that firms should assist customers in taking responsibility for their decisions. Many participants in financial markets are subject to information asymmetries so cannot transact with firms on a level playing field, and of course there is a role for firms to ensure that their customers understand the decisions that they are making. This is clearly a market conduct issue and is already embedded in the FCA's consumer protection objective.
	When pursuing this objective the FCA must have regard to a number of factors when considering what is an appropriate degree of consumer protection. These are already set out in the Bill and include,
	"the differing degrees of experience and expertise that different consumers may have ... the needs that consumers may have for the timely provision of information and advice that is accurate and fit for purpose";
	and,
	"that those providing regulated financial services should be expected to provide consumers with a level of care that is appropriate".
	These provisions will allow the FCA to ensure that firms offer their consumers a level of care that may go further than offering "reasonable assistance", so again I suggest that this amendment is unnecessary and may be constricting.
	I have given, I trust, a full analysis of these amendments. I hope that my noble friend will understand that while he raises some very important points, the construct we have within the Bill means that these issues, which were raised by the Joint Committee, are taken into account fully within the consumer protection principles and the other powers and sections of the Bill to which I have referred. Based on those assurances, which refer of course to both the regulators, I ask the noble Lord to withdraw his amendment.

Baroness Hayter of Kentish Town: I am not quite clear, despite all the noble Lord has said, how conflicts of interest will be dealt with. This is not about timely advice or all those other things he mentions, but it is absolutely central to the issue of duty of care.

Lord Sassoon: To be absolutely clear, the regulators-and the FCA in particular-will have very clear powers to make any further rules on top of those that already exist in the FCA's rulebook in order to deal with conflicts of interest. I can be completely clear and unequivocal on that point. The powers are there and further rules can be made in this area if the FCA at any point regards them as necessary.

Lord Sharkey: I thank the Minister for his detailed response. I listened very carefully to everything he said, but I was not convinced by the notion that this group of amendments might narrow the FCA's scope to act in this area. I was equally unconvinced that the general duty to provide services honestly, fairly and professionally was too vague, wide or ill defined, if that is what the Minister was actually saying.
	I continue to believe that there is merit in an explicit inclusion of the two principles that we suggest in the list of the regulatory principles common to both the PRA and the FCA. The debate has also shown the high level of concern about this whole area. The detail of the Minister's response shows that he is alive to that level of concern. I expect that we will return to this matter on Report. In the mean time, I beg leave to withdraw the amendment.
	Amendment 106A withdrawn.
	Amendment 106B
	 Moved by Baroness Hayter of Kentish Town
	106B: Clause 5, page 17, line 2, at end insert "and the requirement that all asset managers shall disclose the nature of their commitment to the stewardship code or explain their alternative investment strategy"

Baroness Hayter of Kentish Town: Amendment 106B stands in my name and that of my noble friend Lord Eatwell. Oddly, there is no mention of the Financial Reporting Council in the Bill, despite its central role in the regulation of financial services. Equally absent is the FRC's stewardship code, although it is clearly relevant to the objectives of both the PRA and the FCA. In the case of the stewardship code or the UK corporate governance code-also strangely lacking; perhaps it is my fault that it is not mentioned in the amendment-the Bill's drafters may say that that absence is due to the fact that the precise name of the codes may change over time. I think that it was the Cadbury code, then the combined code, then something else, and now it is the governance code. I understand that the drafters may say that they do not want the precise wording of the stewardship code or the corporate governance code included, but I am sure that it is not beyond the wit of drafters to include something such as, "such codes agreed by the FRC as are currently in force".
	The issue of codes and their enforcement is central to the behaviour, standards and culture that we expect of the industry. The Minister has already rejected a code of conduct, but these are separate to that. Since 2010, there has been reasonable progress with the introduction of the stewardship code. About 230 asset managers, asset owners and service providers signed up in the first 18 months of its existence. The stewardship code is addressed to firms which manage assets on behalf of institutional shareholders, although perhaps it was not top of the thoughts of those fixing the LIBOR rate: people who were dicing with money which belonged to others.
	Amendment 106B would ensure that the Bill gives regulators a proper, clear mandate to strengthen the stewardship code if needed and, importantly, sufficient teeth to ensure that it is adhered to so that culture changes can happen. In another place, Mark Hoban noted that the FSA supports the FRC's stewardship code through mandatory requirements on asset managers either to comply with the stewardship code or explain their alternative investment strategy. He said that such powers would transfer to the FCA, but that power is not laid down in the Bill. Surely we need to ensure, via the stewardship code and its monitoring by the FCA, that asset managers must demonstrate their commitment to the code. It needs the force of law to make it happen, because that has clearly not been the case so far.
	I turn to the other two amendments in the group, which deal with co-ordination between the FCA and the Financial Reporting Council. Amendment 121B is intended to ensure such co-ordination and Amendment 121C would require a memorandum of understanding. I hope that we do not go back to the briefing from the Box that says, "Say no to memorandums of understanding". It makes no sense for the Bill to ignore the Financial Reporting Council. It is the UK's independent regulator to promote high-quality corporate governance. Again, in the other place, Mark Hoban emphasised that the matters of stewardship and corporate behaviour are predominantly the responsibility of the FRC via its codes and the Bill should be about corporate behaviour. Thus, we require to see co-operation-indeed, an MoU- between those two parts of the new regulatory architecture. The two codes need the impetus of an FRC requirement to comply or explain if they are not just to be left on someone's shelf.
	Even more, as I mentioned earlier, we need to develop a new code of conduct for bankers. As Ed Miliband has said, if we are serious about banking regaining the status of the professions, we need a code that goes across the industry. The FRC deals with codes. It is the regulator for accountancy and actuarial professions, including itself operating independent disciplinary arrangements for public interest cases. It oversees the regulatory activities of the professional accountancy bodies and the actuarial profession, including bodies such as the ICAEW, which authorise regulated members to carry out company audits. The FRC thus oversees the disciplinary systems of the regulated persons working within the financial sector. Close co-operation between the FCA and the FRC is essential to strengthen the standards expected of professionals and their organisations and in the monitoring and disciplining of those professionals or their companies.
	The FCA will rightly be able to disqualify but also to discipline. However, the first-line discipline lies mostly with the recognised professional bodies and, after that, with the FRC, which can deal with accountants and their firms, auditors and their firms and actuaries-although not their firms. I know that the FRC is already thinking about an MoU with the FCA, in part to ensure that any disciplinary action is co-ordinated and that auditors and actuaries are not subject to double jeopardy or-my fear-semi-jeopardy. Discipline is one area where FRC-FCA working is needed, but there are other aspects. As the noble Baroness, Lady Noakes, who is not in her place at the moment, noted on 3 July, new Section 9Q allows the FRC to make recommendations to the whole world. Although not specified in the Bill, the Explanatory Notes to new Section 9Q cite the FRC as an example, as the Minister said previously in Committee specifically in relation to corporate governance standards.
	The FRC also sets standards for monitors and oversees the work of auditors. It is notable that none of the recent failures was found by auditors, which begs some pretty big questions. The present Governor of the Bank of England has identified changes needed to the auditing profession and role, with less window-dressing of accounts, especially in disguising leverage. The Joint Committee suggested that the Treasury should consider whether a duty should be placed on auditors to draw certain risks to the attention of regulators. HMT has responded that the FCA would have powers to make rules imposing duties on auditors, but such rules and their monitoring and enforcement largely reside with the FRC-another reason for the need for the clarity of an MoU as to who does what.
	As a standard-setter, the FRC's links with European bodies are key, but many of them will be led by the FCA or the PRA, which again means that the working relationship between the FRC and its voice in Brussels needs to be clear, as well as transparent via an MoU. I will take one moment to tell you a story about the need for that to be joined up. When I was working with the FRC, I was also working with the Insolvency Service's Insolvency Practices Council. I was very aware that certain banks were putting people into debt management systems rather than into an independent voluntary agreement. The reason was that if it was an IVA, it could not be carried forward as a debt, it had to be written out of the bank's accounts. Putting them into a debt management scheme made what were quite toxic loans appear normal. Having heard about this through the Insolvency Practices Council, I went to the FRC and said, "Your rules do not seem to allow for that". The FRC said, "Our rules are absolutely fine on that, but they are enforced by the FSA". So I wandered across to my old friends at the FSA and explained all this. I said that the rules said they should not be shown as good debts when they were actually bad debts. The FSA looked it over and said, "Ah, that's very interesting, but it's a credit issue. Her Majesty's Treasury deals with that". So I went back to the lovely lady who I worked with in the Treasury and told her the story. She said, "That's very interesting, but the rules for auditing are made by the FRC. Why don't you go there?". That is simply an example of no one taking responsibility. We need an MoU to be absolutely clear who will deal with it when something needs doing.
	The financial sector service is made up of people-that is basically all it is, along with some clever computing powers. They are professionals, trained to standards set by professional bodies, working to technical standards agreed by the FRC, abiding by ethical codes adopted by their professional bodies which are overseen by the FRC. If we are to make any progress in improving behaviour and standards, the FRC will be an integral part of that. It is a body that must be recognised in the Bill, and it must be under a mutual obligation to work closely with the FCA. I beg to move.

Lord Sassoon: My Lords, I am sorry to say that this is one of those groups of amendments where I do not think that the Committee's time will be well served. I have repeatedly made public and private offers to the opposition Front Bench to talk to us in the Bill team at any time about any of their amendments. Not once in the process of this-now long-Committee stage, or before it, have the Opposition taken up the offer of talks to discuss amendments.

Baroness Hayter of Kentish Town: My Lords-

Lord Sassoon: If the noble Baroness will let me, I will complete my sentence before letting her in. She herself began by saying that these amendments are defective, and that is indeed the case. As I shall explain, however, they also do not reflect one or two of the simple facts of the situation. Although there is, of course, a proper concern in this area, if the party opposite were prepared to discuss those facts, we might not be talking about some of these amendments in the way that we are.

Baroness Hayter of Kentish Town: My Lords, that offer has not come to me. I was at one meeting with the Bill group and asked whether I had access to the Bill team, but I have yet to be given its e-mail address. I had an e-mail from the team about one of our amendments earlier this week, and I have written to it on another issue. I have not had repeated offers. I have talked to the FRC about this amendment, and it knows all about it. I am therefore slightly surprised by the Minister's comment.

Lord Sassoon: My Lords, I believe that I made the offer in the last Committee session, on the Floor of the House. Hansard will record when I last made the offer in this Committee. I cannot speak to every member of the opposition Front-Bench team but I have made the offer repeatedly to the noble Lord, Lord Eatwell. Indeed, I know that the Bill team has made quite clear to the opposition research team how it can be reached. I make the offer again because I think that there are many things around which we could clear the ground, and that would be helpful for everybody. I can quite understand that there may be issues here, but there are many interested parties who put forward all sorts of good ideas for amendments which, on scrutiny, might be not be reflective of the situation as it exists.
	Let me help the noble Baroness with a couple of the facts of the situation. First, the FCA has already brought in a rule with which she may be familiar but to which she did not: rule 2.2.3 of the current Conduct of Business Sourcebook. This requires UK-authorised asset managers to put statements of commitment to the stewardship code on their websites, or-if an asset manager does not commit to the code-to provide its alternative investment strategy there. I would of course expect the FCA to carry forward this important rule in its own rule book. So I would suggest to the Committee that the suggestion underpinning the discussion we have just had-the contentions around the lack of joined-upness-are not reflected in the way in which the FCA Conduct of Business Sourcebook already explicitly refers to the stewardship code.
	I agree with the noble Baroness completely about the need for an MoU. However, what she does not do in her speech this evening is to recognise that the FSA already has an MoU with the FRC. I believe that it covers all the relevant matters. We have discussed the subject of MoUs before. The Bill provides explicitly only for MoUs between the key players in the regulatory system: the Bank of England, the FCA, the PRA and the Treasury. We have discussed why that should be. That does not mean that there will not be-and are not already-MoUs between the new regulators and other bodies; we have talked about the OFT, and there is already an existing MoU with the FRC.
	So I understand where the noble Baroness is coming from in this group of amendments. I believe that the matters are already properly accommodated within the Bill. I wish that we could have had a discussion about this outside the Committee, but I am glad to have now got that on the record. I would ask the noble Baroness to withdraw her amendment.

Baroness Hayter of Kentish Town: My Lords, it would not be very satisfactory not to consider such an important issue in Committee. Concern about it is shared not just by the FRC but by the ICAEW, which last night again expressed its support and its belief that the issue is important. As the Minister will know, there are vital and urgent requirements to improve client asset audits. Those can be undertaken only by regulated professionals overseen by their recognised professional bodies, such as the ICAEW, and these are overseen by the FRC rather than the FSA. So this is key stuff. This is not-this will sound awful but I will say it-"a little discussion with the Baroness, who does not really understand it but can be well briefed outside this House". I think that that was the tone of the Minister's comments. I am speaking on behalf of organisations such as the ICAEW, which feels very much that it has a key role to play, which it wants to play, in the regulation of this industry. We know that we need improved rules and guidance about how auditors should work. We know that this is in the hands of professional bodies, not the FCA. If there is already an MoU with the FSA, it seems to me that there will be one with the FCA. So I do not think that writing it in legislation will cause a revolution, nice though that would be. There are important issues of discipline in the hands of ICAEW and other professional bodies overseen by the FRC. It would be inadequate for those to be free-floating and not in the Bill. For the moment, however, I beg leave to withdraw the amendment.
	Amendment A106B withdrawn.
	House resumed.

Lord De Mauley: My Lords, the noble Lord, Lord Patel, has withdrawn his name from the following debate. I therefore suggest that there is now time for speakers other than my noble friends Lady Jolly and the Minister to speak for up to five minutes each.

NHS: Specialised Services
	 — 
	Question for Short Debate

Baroness Jolly: To ask Her Majesty's Government what is their assessment of the future of the work of the Advisory Group for National Specialised Services.

Baroness Jolly: My Lords, I declare an interest as chair of the Specialised Healthcare Alliance, a coalition of 79 patient-related organisations receiving financial support from 11 corporate members, which campaigns on behalf of people with rare and complex conditions.
	The Advisory Group on National Specialised Services, or AGNSS, was established in 2010. Its role was to provide a single source of advice to Ministers on whether services, products or technologies for very small patient populations, usually not exceeding 500 for England as a whole, should be commissioned at national level rather than by PCTs, individually or collectively. Some 65 services are enormously important to over 10,000 people with a range of very severe and frequently life-threatening conditions.
	What makes AGNSS different is that it brings eminent clinicians together with commissioners in considering these complex matters and integrates other vital perspectives through members with health economics and ethical expertise and from the lay community. For the first time, AGNSS evaluates services, products and technologies using an ethical decision-making framework that holistically balances a range of factors, including patient need, clinical severity, clinical effectiveness, affordability, service efficiency and the value to society. It would be fair to say that the development of AGNSS and its decision-making framework, with widespread input from all parties, was seen as a model of its kind and that the group, under the capable leadership of Professor Michael Arthur, has only grown in stature over the past two years.
	Organisations and others with an interest in the health and welfare of people with very rare conditions were greatly concerned when it was announced at the turn of the year that AGNSS would be entering a moratorium, pending decisions about its future. If the reaction to this debate is anything to go by, it is much appreciated and valued by research scientists, organisations representing patients and pharmaceutical companies, who have all expressed their alarm at its possible demise.
	My understanding is that this decision stems from the view that an advisory group for Ministers will be incompatible with the provisions of the Health and Social Care Act 2012, which devolves responsibility for the commissioning of all specialised services to the NHS Commissioning Board. To quote from my noble friend the Minister's letter of 8 June to Mark Simmonds MP:
	"In the future, there will be a clear differentiation between what services the Board should commission and how those services are commissioned. It will remain the responsibility of ministers to consider, on the basis of appropriate advice, the list of services that should be directly commissioned by the Board. Ministers will then consult with the Board on those services before laying regulations that will specify the services that will be commissioned. It will be for the Board to decide how it commissions the service".
	As the letter acknowledges, Ministers will need advice on what services are to be prescribed in regulations for commissioning by the board. My understanding is that the Clinical Advisory Group, presently chaired by a civil servant, Dr Kathy McLean, will fulfil this function in relation to the generality of services. The question is whether highly specialised services should be channelled through the same route.
	The views of eminent clinicians presently sitting on AGNSS or leading services commissioned through the AGNSS process suggest that this is at least worthy of debate. In particular, AGNSS is recognised as a route whereby such services can engage with commissioners. I am told that this is an iterative and demanding process, taking some considerable time before a decision is taken. The net result is generally one where there are indeed costs to the NHS, but often costs that are reduced as a result of coherent commissioning. For example, the decision to commission severe acute porphyrias means that young people presenting with potentially fatal attacks should now have speedier access to expert care with less wastage of the relevant drug, haem arginate, which has a short half-life. Similarly, AGNSS was able to advise on the managed introduction of extracorporeal membrane oxygenation, or ECMO, which has saved many people whose lungs are severely distressed, most notably as a result of swine flu.
	The danger is that without a clear port of call in the form of AGNSS, these important services may get lost from sight, as will the opportunity to develop them in a way that meets the needs of patients and delivers best value to the NHS. Furthermore, Ministers may be hard pressed to decide on whether the board should commission such services without high-quality advice on what they comprise.
	The relevance of these services, not just to England but to all parts of the United Kingdom, would also seem to count in favour of retaining an advisory group alongside Ministers, as would the broader strategic importance of issues such as proton beam therapy. I therefore put it to my noble friend the Minister that in the case of highly specialised services there might be merit in retaining a group providing a single source of advice to Ministers but with a dual reporting function to the board in determining how such services should be commissioned.
	As for the composition of this group, I have heard it said from reliable sources that if AGNSS did not exist it would need to be invented. In a recent conversation with Professor Arthur, he outlined the three components that made AGNSS effective, unique and special: the support from the national specialised commissioning team, the strength of the group-an ethicist, a health economist, a geneticist, a pharmacist, representatives of all royal colleges, representatives of SHAs, lay people, carers and patients, commissioners from PCTs and a member of the HTA-and excellent advice to AGNSS from public health doctors.
	We are going through a period of enormous change in the NHS, but change for change's sake is to be avoided at any time-and surely now more than ever. I therefore urge the Minister and the chief executive of the NHS Commissioning Board to think carefully about disbanding AGNSS when the need for it remains unchanged. Historically, the view has been taken that NICE would struggle to combine under one roof the evaluation of products with a cost per quality-adjusted life-year often very substantially higher than the threshold which usually applies. Furthermore, in this highly specialised field, where a service develops around a novel treatment, the distinction between services, products and technology is sometimes difficult to make in areas of previously unmet need.
	The AGNSS decision-making framework therefore represents a major step forward. It recognises that the evidence-base for small patient populations may be less developed. At the same time it imposes demanding standards in terms of the number of patients whose condition improves as a result of a treatment, compared to the total number of patients treated. This approaches 100% for more expensive services, products and technologies.
	That progress has been hard won and should not be squandered but built upon. In a debate in the House of Commons on 30 April about a strategy for rare diseases, the Minister of State, the right honourable Simon Burns MP, appeared to suggest that value-based pricing will supersede the need for separate arrangements for treatments for very rare conditions, but that alternative options will be explored in case of need.
	All are agreed that value-based pricing has exciting potential. The challenge of expressing that potential will be considerable for the generality of treatments, but it will be undoubtedly greater for very rare conditions. In the mean time, retention and development of the AGNSS framework would seem to have great merit.
	AGNSS represents something of a jewel in the crown. The dancer cannot be easily separated from the dance in determining which highly specialised services to commission and how to commission them. Ministers will continue to need high-quality advice. I would hope also that the first mandate to the board recognises the value of this heritage and bestows it for safekeeping.

Lord Turnberg: My Lords, I am sure that we are all grateful to the noble Baroness, Lady Jolly, for introducing this debate and setting out the issues so clearly. There is deep concern among the support groups that speak for patients with rare diseases that the loss of this advisory group, newly formed as it is, will be a retrograde step and create confusion and a loss of a valuable asset. I have no doubt that the Minister will try to reassure us by saying that this will all be taken care of by the commissioning board. There is little or nothing in the Health and Social Care Act, or in any other document I have seen, that offers any confidence yet that this has been given enough serious attention. I look forward to him saying rather more than we have heard so far when he comes to round up.
	It is the case that the advisory group has been widely regarded as doing a marvellous job. It is recognised not only by the NHS and by patients, but also by other countries as a model for the way services for patients with rare diseases should be provided. It does this by having developed a rational framework that takes account of best practice and societal and health gains. It has done so in a way that is efficient and at a reasonable cost.
	I would like to illustrate this by using the example of the group of orphan, or very rare, diseases that rejoice under the name of lysosomal storage diseases. These include Gaucher's disease, Hurler's syndrome and a number of others. They affect few patients, almost all in childhood. An average GP in an average year is unlikely to see a case. If she is faced with a case she is unlikely to know what to do about it and left to herself is likely to be reluctant to fund the patient's care.
	These are the sorts of cases that have to be funded and commissioned centrally and cannot be left to CCGs. Only when sufficient knowledge and expertise are available can commissioning be rationally arranged. Here, the advisory group has been invaluable. It is not simply commissioning that is needed. The provider services for rare diseases must be distributed in a limited, rational number of places to make the best use of limited resources. Specialised services for children with lysosomal diseases are located in only three places: London, Birmingham and Manchester. For adults they are located in five places around the country. Only by limiting the number of sites can you expect to develop a critical mass of specialised doctors, nurses and other healthcare workers to provide the best possible care. They are also the places where teaching and research into these diseases can best be done.
	That is one example. Similar needs apply to a much larger number of diseases, each of which occurs rarely. The Genetic Alliance UK is an umbrella organisation that brings together over 150 patient-led charities, each set up to support these patients, again mostly children, with genetic diseases. Most of them fit into the category that is covered by the advisory group; that is, they affect fewer than 500 patients a year and currently the advisory group covers about 70 specialised services. For these patients, the advisory group has made all the difference. Yet now there is much concern that all this expertise will be pushed out and dissipated as the commissioning board takes on its multitude of responsibilities.
	Can the Minister reassure us and them that there will be a rare disease plan in the mandate for the board? Will the board have access to the specialised expert advice that is so valuable and ready made for this purpose in the advisory board? I am sure that he is well aware of the need and requires no prompting from me on this, but I hope that he is going to be able to say something today that will help allay these concerns.

Lord Palmer of Childs Hill: My Lords, the noble Lord, Lord Patel, is indisposed and we wish him well.
	I thank my noble friend Lady Jolly for initiating this debate and for giving a detailed introduction to the problems mentioned in its title. My concern is specifically with the treatment of Gaucher's disease, the genetic disease mentioned by the noble Lord, Lord Turnberg. It is the most common lysosomal storage disease. It is caused by hereditary enzyme deficiency. Patients in the UK, together with patients suffering from other lysosomal storage disorders, or LSDs, are treated at nationally designated centres run by the Advisory Group for National Services and I am grateful to my noble friend Lady Jolly for reducing that to AGNSS, which saves me from repeating this long name, or the initials. There are eight nationally designated treatment centres in England serving these patients.
	Since 2005, the treatment of LSDs has come under the management of AGNSS, which has allowed LSD patients to benefit from national designation with respect to assessment, diagnosis, clinical management of the disease and assessment of the therapies. The centralised management of LSDs previously mentioned by the noble Lord, Lord Turnberg, and my noble friend Lady Jolly is the creation of eight nationally designated centres and has had the following key benefits.
	First, there has been provision to patients of access to experts in the management of these rare diseases. Without this access patients have suffered misdiagnosis, as the noble Lord, Lord Turnberg, said, and inappropriate treatment. Secondly, all patients in England-and it is England that we are talking about-have had equity of access to therapies. Thirdly, a nationally funded service has provided budgetary transparency for the NHS, ensuring the efficiency and effectiveness of therapies and avoiding unnecessary costs. Fourthly, the ability to launch national tenders for therapy and home care has resulted in further cost savings. Fifthly, there has been the development of national clinical guidelines defining diagnostic treatment and management criteria.
	The Government have determined to disband AGNSS as part of the establishment of the NHS Commissioning Board, as has been referred to by other noble Lords. It is not yet clear how this will work and whether this service for the assessment and management of patients with LSDs will remain a distinct body. The potential disbandment of AGNSS and the subsequent division of the assessment and management of rare diseases raises significant concerns that the issues faced by many LSD patients prior to national designation will resurface. These will include delays in access to diagnosis and treatment, regional inequalities and inconsistencies, misdiagnosis and inappropriate disease management, wasted resources in the NHS, and the separation of clinical management and appraisal of therapies.
	The current service is envied around the world and in its existing form is an example of the NHS at its best. In other branches of the NHS we are encouraged to create centres of excellence, in terms of heart treatment, heart attacks, strokes and the like. Many hospitals are ceasing those services-to have centres of excellence-but the rationale for them should apply to these rare diseases as well.
	Can the Minister assure patients benefiting from centralised commissioning arrangements provided by AGNSS that they will continue to do so in any new arrangements and that there will not be a break-up of the existing services? Can the Minister confirm that the new NHS Commissioning Board will retain a dedicated budget appropriate to meet the needs of LSD patients currently being treated, with provision for potential additional funds for new therapies in the course of development? Can the Minister give an assurance that the new arrangements will not see a return to what is called postcode lottery for treatments of patients with rare diseases? Does the Minister agree that rare diseases requiring specialised services cannot be treated in the same way as more common conditions, and that structures such as AGNSS need to be put in place to ensure that patients continue to be properly and appropriately managed and treated by the NHS?
	Finally, the chairman of the European Gaucher Alliance, which represents patients' groups from 36 countries, tells me that the current structure for the delivery of healthcare to Gaucher's patients is envied around the world and is the inspiration for their organisations. I hope that the Minister can provide an assurance to the House that this type of service will continue.

Baroness Hollins: My Lords, until 2008, I was deputy chair of the National Specialist Commissioning Advisory Group, which was a predecessor organisation to AGNSS.
	There are some very rare conditions affecting mental health. Services meeting the criteria defined by the noble Baroness have been commissioned, such as: the children's gender identity development service, for children struggling with the development of their gender identity; services for those with very severe obsessive compulsive and body dysmorphic disorders; secure mental health in-patient services for young people, including those with learning disabilities and those who pose a forensic risk; and services for young deaf people with acute mental health problems. Each of these disorders is low in overall national numbers, which makes it difficult to assess the suitability of proposed services and treatments. The proposal made in the draft mandate to the NHS Commissioning Board is that the board will commission those services that fall into the national specialised services definition set. I understand that 85 services are being considered, of which about 10 are mental health services. These include some services that were previously commissioned following recommendation by AGNSS, such as the services I have already briefly described.
	My worry, and I seek ministerial reassurance on this, is that learning disability and mental health services will fall though the specialist commissioning gap. Some of these services are quite messy. They do not conform to the medical model of rare medical diseases that can be researched in the lab, even if they have a serious impact and are rare. Even moving these services to NICE would create a problem since the research investment needed to provide evidence-based treatment has been neglected until now.
	If there is to be parity of esteem between mental and physical illness, people with severe mental illness and with learning disabilities need equal attention to their complex clinical conditions. For example, there is no new, well funded research into drugs to treat serious mental illness and no repurposing of drugs, and I am unaware of any investment into exploring, for example, the role of immunology in drug treatment for severe mental illness.
	I would like the Minister to comment on the continuing need for such highly specialist commissioning skills that have been developed within AGNSS and its predecessor NSCAG. There is some concern, which I share, that the successful work of AGNSS will be lost, with the risk of forgetting important lessons learnt about national, highly specialised commissioning in the past few decades. The NHS constitution states that the NHS's resources are to be used,
	"for the benefit of the whole community",
	to,
	"make sure that nobody is excluded or left behind".
	There are concerns about whether any group which replaces AGNSS would comprise sufficient expertise to assess the unique requirements of highly specialised services, as well as about how the strong relationships built by AGNSS with royal colleges, patients and others will remain within the national Commissioning Board.
	For me, the most important message is that some highly specialist services are needed for a small number of people with severe mental illness and learning disabilities which may meet, or nearly meet, existing criteria. New criteria for highly specialist services must ensure parity for these groups. Can the Minister assure the House that the new commissioning arrangements for highly specialised services will indeed mind the gap for complex psychiatric conditions, including those affecting people with learning disabilities and deaf people, and that the skills that AGNSS has demonstrated, which are still needed to commission highly specialist services in the future, will be retained and further developed as suggested by the noble Baroness, Lady Jolly?

Baroness Masham of Ilton: My Lords, I thank the noble Baroness, Lady Jolly, for this timely debate on AGNSS. There is no doubt in my mind that there are many really concerned and frustrated people who are involved in highly specialised conditions, be they patients, relatives or doctors treating them. With so much insecurity and with PCTs running down and the national Commissioning Board not operational yet, there is a limbo situation.
	When a rare disease strikes, it is the individual who matters. The correct treatment is vital, but with rare conditions risks have to be taken if there are to be improvements. The Chief Medical Officer, Dame Sally Davies, has recently endorsed the value of research into rare diseases by the National Institute of Health Research as a significant source of benefit for patients with rare diseases. The role of AGNSS is to advise Ministers. Does the Minister think that the national Commissioning Board members will be infallible so that they will not need advisers? We have come to a shocking situation when staff in St George's Hospital, a teaching hospital, neglected a patient of 22 who had suffered a rare condition, following a brain tumour, that required daily drugs. He died of thirst because staff failed to read his notes. Patients with rare conditions need extra-special treatment; they should not be neglected and ignored. What has gone wrong? We need transparency and confession and a fool-proof system for all vulnerable patients. When the Government say that everything is fine when it is not, it is a cover-up.
	AGNSS is an independent advisory group providing advice to the Secretary of State for Health regarding the commissioning of services for very small populations of patients-fewer than 500 patients in England. Will the Minister make clear what the future of AGNSS is? To cover all specialised services adequately, the Commissioning Board will have a mammoth task.
	I must declare an interest as I have a cousin aged six who has relapsed neuroblastoma. The treatment his parents are trying to access is likely to become available on a trial basis in the UK, but not in time for Jamie. It has been internationally recognised as being one of the most promising therapies with encouraging results against neuroblastoma. I think it is available in Germany. There are only about 100 patients a year in England with this aggressive type of child cancer. It desperately needs research. Parents will do anything for their children. This family is appealing to the North Yorkshire PCT.
	I am president of the Spinal Injuries Association, which is concerned about tetraplegics and paraplegics who are not being admitted to spinal units. One case is still residing in St Mary's, Paddington, on a respirator after a ski-ing accident. He has been waiting to go to the spinal unit at Stanmore for months. This is not good. Correct specialised care means good quality for patients. The noble Earl is Minister for Quality. Does he agree that there should be a special fund for very rare cases so that they are not passed over? I, who have every admiration for our hard-working Minister, do not want the system to give him the reputation of being a Pontius Pilate. Even with AGNSS, there are improvements to be made. There is a black cloud hanging over the NHS: the £20 billion that has to be saved. With so many demands on healthcare, this challenge may just be too great.

Baroness Thomas of Winchester: My Lords, I am grateful to my noble friend Lady Jolly for this debate. I do not have to declare an interest because, although I have a rare disease, I do not have an ultra-orphan disease. There will be a lot of repetition in what we are saying but perhaps the very fact that we all want the same thing will send a powerful message to the Government. That message has been particularly loud and clear from all the groups that have been lobbying us and are very worried about the future of the commissioning of services for these very small populations of patients with ultra-rare diseases. They all want a version of AGNSS to continue its invaluable work and they do not want its expertise and experience to be lost when the NHS Commissioning Board takes over the responsibility of commissioning specialised services.
	It is something of an irony that as medical research finds more and more treatments for these ultra-rare diseases, and as improvements in diagnosis mean that more people will have a correct diagnosis and therefore potentially live longer because their condition can be treated, the actual drugs and therapies they need might be deemed unaffordable. That is why we need AGNSS more than ever at this point where research is at the forefront of the Health and Social Care Act. That Act now gives the Secretary of State, for the first time I believe, the duty to promote research in the NHS. This will inevitably mean that new therapies will be found for rare disorders. This should be great news, but will it be for the very small proportion of the population who have these ultra-rare conditions? Will they be denied access because of the high cost of treatment? The key question is what value-based pricing, due to be introduced in January 2014, will mean for high-cost low-volume drugs and whether these can be adequately assessed within a new value-based pricing framework.
	The Department of Health says that the new system will give patients and clinicians greater access to clinically effective and cost-effective medicines. But experts are not convinced that the system will work without the AGNSS framework, particularly given the situation in Scotland where AGNSS does not operate. The last thing we want is to go back to the old days when people diagnosed with Pompe disease, for example-an ultra-rare but treatable neuromuscular condition which affects fewer than 100 people in England-were not always certain that enzyme replacement therapy would be licensed in England because NICE had to be satisfied that it would be cost-effective. Through the leadership of Sir Michael Rawlings, national commissioning of such orphan drugs was transferred to an advisory body which later evolved into AGNSS, and the dreaded threat of a postcode lottery was removed.
	In its short life, as we have already heard this evening, AGNSS has garnered high praise for its thorough evaluation process, which is seen to be open and transparent, using the uniform expertise to evaluate funding for service provision and therapies, thereby avoiding inefficient and artificial separation of commissioning for drugs and services. It is likely that this good practice has led to the UK being looked on favourably as a destination for pharmaceutical industry-sponsored clinical trials. Surely we all want this to continue and develop. Can the Minister say what the timescales are for confirming the future work of AGNSS and can he confirm that the Secretary of State for Health has the duty under the new Act to provide specialised services for all who need them, however rare their disease?

Lord Walton of Detchant: My Lords, I too am deeply grateful to the noble Baroness, Lady Jolly, for initiating this important debate. I have been a long-time supporter of the Rare Disease UK consortium, now chaired by the man who recently was the director of the Genetic Interest Group. A recent editorial in the British Medical Journal in June said:
	"Three million in the United Kingdom have a rare disease, defined in both Europe and the USA as a disease that affects fewer than one in 2000 people. It is well recognised that those with rare diseases face intrinsic inequalities in healthcare, and in response to a 2010 recommendation by the European Commission, the UK government, like other member states, agreed to produce a strategy for rare diseases by 2013".
	The Government at the moment are consulting on this very important topic.
	Before I come to that I want to say a word about AGNSS, which has proved to be remarkably successful. It has been funded by top-slicing of funds-up to about £100 million a year-from primary care trusts across the UK and it has enabled companies such as Shire Pharmaceuticals to develop enzymatic treatments which have in fact been able to reverse diseases like those referred to by the noble Lords who spoke earlier about the various storage disorders. It has been able to control disease in people with Fabry disease, Hunter syndrome, Gaucher's disease and others. It has been immensely successful and its future is therefore crucial. It is important that the Government recognise in the consultation process they are undertaking that the needs will increase as time goes by, because the developments in genetic medicine and molecular biology are revealing in many of these devastating and rare diseases single genes whose effects can be controlled to an extent by new forms of treatment. As time goes by, more and more orphan and ultra-orphan drugs to control these rare diseases are coming on stream.
	One major concern about the proposals in the Government's consultation document is that, while it contains proposals on diagnosis and services for rare diseases, policy and treatment is deflected to forthcoming proposals on value-based pricing. Value-based pricing is unlikely to be capable of dealing with medicines for orphan and ultra-orphan diseases because, after all, the number of patients affected by these conditions is relatively small. The drugs that are being developed are going to be very expensive and they are not going to be commercially viable unless they are sponsored and subsidised by funds from an organisation like AGNSS. This is a crucial issue which I hope the Government will be able to deal with. At a recent meeting Sir David Nicholson suggested that it was probable that the functions of AGNSS would be taken over by the national Commissioning Board. I know no decision has yet been made but will the Government tell us what the prospects are, whether the responsibilities will be extended and whether funding for AGNSS is likely to be increased?
	Finally, in the light of my own private research I want to mention a disease called Duchenne muscular dystrophy-a devastating disease of young boys causing progressive muscular paralysis. For the first time certain drugs are now coming on stream which have been shown by clinical trials to be effective in delaying the actual progression of this condition. These drugs are so-called molecular patches which overcome defects in the actual gene. This is a form of exon skipping. For these drugs to be effective, several different types of molecular patches may have to be developed. Speeding up that process for different mutations will be difficult but the safety issues are all the same. Can the Government give us an assurance as these molecular patches for this devastating disease become increasingly available that not every single patch is going to have to be tested and subject to regulatory control, and that regulation covering all these patches may be acceptable?
	We are dealing with a very important group of diseases which cause immense human suffering. AGNSS, in some form or other, must continue and it must have its functions and, I believe, its funding increased.

The Earl of Listowel: My Lords, with your Lordships' consent, I will speak briefly in the gap on the issue of the mental health of families and children and on clinical standards for children and young people in care. My noble friend Lady Hollins raised important points in this area. I will give one further example. The NSPCC's Young Abusers Project, run for many years by the eminent forensic psychiatrist Dr Eileen Vizard, deals with children who have abused other children. I am afraid there are significant numbers of those children but it is hard to get specialist services for them. In the past, Dr Vizard has explained to me how she has chased her PCT to get the money to provide this specialist service and has failed. The difficulty is that the service starts to treat a child whose behaviour begins to improve and he or she begins to get better. The local authority then whips the child out because the symptoms have gone. But if the service does not intervene effectively in childhood, a child can become an adult with similar problems. We really need to address such issues as regards children's mental health.
	The Cassel Hospital used to provide a service for very damaged families. It enabled mothers who perhaps had lost several children through being taken into care to keep their children because the hospital provided such good, specialist intervention for the mental health of those families. I would be grateful for the Minister's assurance that the importance of the mental health of families and children specialist services will be carried forward in the new dispensation. Perhaps the Minister could write to me on the clinical standards for young people in care. NICE is responsible for taking those forward. If we can get those right, we will need fewer specialist mental health services for children and families in the future. I look forward to the Minister's response.

Lord Hunt of Kings Heath: My Lords, I congratulate the noble Baroness, Lady Jolly, on giving us this welcome opportunity to discuss national specialised services. The points that she has made are significant both in terms of specialist services and also in terms of some of the vulnerabilities in the new architecture that we see being brought into the NHS.
	One of the issues raised by the shifting of responsibility from Ministers to the NHS Commissioning Board is a concern that Parliament and parliamentarians will not have sufficient influence on the way in which specialist services will be developed. I too would like to acknowledge the work of AGNSS and express our wish to see it continued. I thought that my noble friend Lord Turnberg put it very well. It is important that Ministers continue to receive the advice of this body in the new arrangements. It seems to me that the arguments being put forward by every noble Lord on this matter are persuasive.
	I also wonder about the advice that the NHS Commissioning Board is to receive. As I see it, there is a two-stage process. First, there has to be a decision on which services are to be so designated, which will be a subject for Ministers and will have to be done through regulations. I am quite clear that AGNSS has a role to play. Secondly, if there are services to be commissioned, how are they to be commissioned and how much are to be commissioned? Again, I wonder whether AGNSS could play a role in advising the national Commissioning Board. I do not know whether the noble Earl would be prepared to comment on that specific point, which is rather separate from that which we have debated so far on advice to Ministers.
	Can the Minister also comment on regional specialist services? Again, we have not really discussed that but, in the past, there has been a mechanism for commissioning at the regional level. Can he say how he thinks that that might be done? Of course, it is possible that the local offices of the national Commissioning Board might do it with the advice of some kind of advisory service. I encourage the noble Earl to go down that route. I really hope that the answer is not that clinical commissioning groups will federate together to commission regional specialist services. Frankly, that will not happen. I would have no confidence whatever in clinical commissioning groups collectively seeing the wisdom of commissioning regional services. At the local level, there has to be leadership. I can see it coming only from the office of the national Commissioning Board. I think that with an AGNSS approach at that level, alongside an ability of the commissioning board at what we call the local level, but which with 28 offices really is at a semi-regional level, there will be scope for that to happen.
	The noble Lord, Lord Palmer, raised the issue of postcode prescribing. If too much is devolved to clinical commissioning groups in relation to specialist services, that is almost inevitable. From the action taken recently by a number of primary care trusts, we have seen that they are only too willing to restrict services. The North Yorkshire primary care trust seems to be in the spotlight and to be making some bizarre decisions. It has sought to describe treatment, which is well recognised nationally and internationally, as innovative and almost not proven. The noble Lord, Lord Walton, raised this issue yesterday. I would worry if clinical commissioning groups were given too much discretion in this area.
	Finally, I turn to budgets and how much money is to be top-sliced. I gently say to the noble Earl, Lord Howe, that Ministers seem to be in denial about the financial pressures facing the health service at the moment. Recently, I had meetings with the Royal College of Nursing and the Royal College of Physicians. They confirmed my view that the NHS is under extreme pressure, the problem being that primary care-the most vulnerable and most patchy bit of the health service-simply is not stepping up to the plate in terms of demand management or developing the services that were meant to keep people out of hospital. Given that, the acute sector is under huge pressure, and my worry is that the national Commissioning Board will be very reluctant to top-slice sufficient resources in relation to specialist services.
	In reminding the House of my health interest, as I should have done at the beginning of my speech, I would be very grateful if the noble Earl could say a little about how resources are to be protected for specialised services in a very strained financial position.

Earl Howe: My Lords, perhaps I may begin by congratulating my noble friend Lady Jolly on securing this short debate on the future of the Advisory Group for National Specialised Services. This is undoubtedly an important area for discussion, not only for the members of the advisory group who have worked hard to provide Ministers with advice but also for patients and families who have benefitted from the national commissioning on which it leads.
	At the outset I would like to say, in particular to my noble friend Lord Palmer and the noble Baroness, Lady Hollins, that in working up plans for the reform of the NHS, we absolutely recognised the needs of people with very rare and rare conditions. We wanted to make sure that we honoured the commitment in the NHS constitution that no one should be "left behind" because of the rarity of their condition. For these reasons, the legislation reflected our view that specialised and highly specialised services were best commissioned at a national level. Services will be set out in regulations, making it very clear what we are expecting the Commissioning Board to directly commission. I can assure my noble friend Lord Palmer that patients with rare conditions, depending of course on their clinical needs, will continue to have access to specialised services and expert treatment. I would say to the noble Baroness, Lady Masham, that the NHS Commissioning Board will retain money centrally to directly commission these services, including services for very rare conditions.
	When the coalition Government were formed in 2010 we endorsed the previous Government's proposal and established AGNSS as an independent stakeholder advisory group, bringing advice and funding together into one body. We also gave AGNSS the specific role of considering whether certain very high-cost, low-volume drugs should be included in the national arrangements for specialised commissioning. In developing this role, AGNSS worked very closely with NICE and developed its own decision-making system.
	Under the Health and Social Care Act 2012, this situation will change from April 2013. Instead of highly specialised services being commissioned nationally by the National Specialised Commissioning Team and specialised services commissioned on a regional basis by specialised commissioning groups, the new NHS Commissioning Board will take responsibility for commissioning all these services. That will all be under a national commissioning policy which will be sensitive to local requirements so that the needs of people with rare and very rare conditions are met.
	Ministers will still be responsible for deciding what services the board should be asked to commission, but it will be the responsibility of the board to decide how it commissions those services. The functions of AGNSS cut across both the "what" and the "how" so I do not see a role for AGNSS in its current form from April 2013 and it will cease to be an advisory group offering advice to Ministers.
	I would like to set out the current functions of AGNSS and consider in turn where each would sit in the future. The first function of AGNSS is to advise Ministers on which highly specialised services, products and health technologies should be nationally commissioned. That will be expanded to cover all specialised services and not just the highly specialised. Ministers will need to receive advice on whether services can be defined by the rarity of the condition, the cost of providing the service or facility, the number of centres able to provide the treatment, and financial implications for clinical commissioning groups. We are currently considering an appropriate advisory mechanism for Ministers that will keep the list of services directly commissioned by the board under review, ensuring that services are commissioned at the right level. In time, some services might be more appropriately commissioned by clinical commissioning groups, but I emphasise the words "in time".
	The second function of AGNSS is to advise Ministers on which centres should be designated providers for nationally commissioned services. In the new reformed NHS, this is rightly the role of the Commissioning Board in carrying out its commissioning of services. It is no longer for Ministers to decide upon. Therefore, advice to Ministers is no longer required. The same is true for the third function of AGNSS: advising on the annual budget for new and existing nationally commissioned services and the contribution required from PCTs. The fourth function is to advise on funding of the management function of the NSCT as hosted by NHS London. That will no longer be needed. The Commissioning Board will manage one single specialised services budget and commissioning function. So, again, Ministers would no longer need that advice, and it will be a matter for the Commissioning Board.
	Whether commissioning a cataract operation or the most highly specialised and long-term treatment, the most important thing is quality of care. We must prioritise good-quality clinical advice on highly specialised services over the structure of a group for its own sake. Work on developing an advisory mechanism for the board on highly specialised services is ongoing. The chair of AGNSS, Professor Michael Arthur, is working with the NHS Commissioning Board Authority on such an advisory mechanism that would build on the skills and expertise of current arrangements. Within the board, there will be a clear focus on specialised services, organised around programmes of care to make sure that services are always top-notch. Commissioning teams will make sure that contracts with providers reflect the needs of people with rare and very rare conditions. On top of that, there will be specific links to innovation, including a specialised services innovation fund. The board will also manage stakeholder engagement.
	I mentioned one important aspect of the work of AGNSS, in assessing very high-cost, low-volume drugs, but so far I have not explained where this function will sit in the new system. We have looked at several potential options. I am pleased to announce that, on the basis of a detailed proposal and discussions, we have asked NICE to take on the assessment of very high-cost, low-volume drugs from April 2013. I am aware that some noble Lords may have concerns about NICE taking over this work, as the current cost per quality-adjusted life year that NICE operates for its appraisals of drugs would rule out highly expensive drugs for small numbers of people with rare conditions. We have explored this issue thoroughly with NICE and it has developed a process for assessing such drugs. It will build on the decision-making framework that AGNSS uses at the moment. That framework balances health gain, best clinical practice, societal value and reasonable cost. In addition, recommendations from NICE will not be based solely on a cost per QALY figure.
	NICE proposes setting up a dedicated expert panel to produce an assessment of a new drug, usually within six months. Given that we wish the new process to commence in April 2013, NICE will develop interim methods for the first few assessments. The institute plans to subject these processes and methods to a consultation in 2013-14 alongside the assessments it will carry out. NICE's work will make sure that we have a robust, transparent and consistent process in place for assessing very high-cost, low-volume drugs. We have a number of points of detail that Department of Health officials are still exploring with the institute. I will be able to say more about the detail of this proposal in the coming weeks, but, in the mean time, I thought it important to provide a progress report to the House.
	The noble Lord, Lord Turnberg, asked about the mandate. I can tell him that the consultation on the draft mandate, which was launched on 4 July and on which we welcome views and comments, emphasises the importance of driving improvements in the £20 billion- worth of services commissioned directly by the board, including specialised services for people with rare or very rare conditions. One of our proposed objectives in the draft mandate asks the board to put in place arrangements to demonstrate transparently that these services are of high quality and represent value for money.
	The noble Lord, Lord Hunt, expressed his dissatisfaction that, as he sees it, Parliament will not have a say in which services are commissioned by the NHS Commissioning Board. The consultation on the mandate provides Parliament and, indeed, others with the opportunity to express views on that matter. I would also reassure the noble Lord, Lord Turnberg, and my noble friend Lord Palmer that within the board there will be a clear focus on specialised services, including experts on highly specialised services, organised around programmes of care and with a national commissioning policy for specialised services that is sensitive to local needs, as I mentioned. Clinical leadership will be the responsibility of Professor Sir Bruce Keogh and advisory mechanisms to the board are being developed. Within 10 of the 27 local area teams of the board, there will be expertise in highly specialised services.
	The noble Earl, Lord Listowel, asked about children with specialist mental health issues and whether they would have access to appropriate treatment. I can give the assurance that such services will be available once the board is responsible for commissioning them. Specialised services relating to mental health was the theme taken up by the noble Baroness, Lady Hollins. We are not yet in a position to announce the full list of the services that the board will be commissioning. However, a great deal of work has been going on to draw up that list. The chairs of 60 clinical reference groups have been working on the matter. They are all leading clinicians in their fields. The CRGs hold a broad membership and an assurance process was established that looked at the work of the CRGs. The findings of the CRGs were considered by the CAG in May of this year and Ministers expect to set out the list of services over the summer.
	In answer to the noble Baroness, Lady Masham, I am of course very sorry to hear about the child she mentioned who has neuroblastoma. Obviously, for reasons of patient confidentiality, it is not appropriate to comment on individual cases. At the moment the decision for funding treatments for neuroblastoma rests with PCTs. In the future, commissioning decisions for patients with rare conditions will, as I have mentioned, rest with the board. I cannot say definitely whether that will be one, but the noble Baroness may like to draw her own conclusions. I am informed that the evidence base for stem cell-based therapy for neuroblastoma is not yet sufficiently robust despite the comments she made.
	The noble Lord, Lord Walton, asked for an assurance that molecular patches will not be subject to constant regular testing. Molecular patches that are found to be safe by the regulatory process can be used on the NHS. My noble friend Lady Thomas spoke eloquently about research. She is absolutely right in the importance she attaches to that. The Government will invest £800 million over five years from April this year in NIHR biomedical research centres and units. Most of these centres are conducting leading-edge research on rare diseases that will benefit patients with these conditions. The NIHR has joined the International Rare Diseases Research Consortium and is actively involved in pursuing the consortium's goals.
	Time is now against me. I beg leave to write to noble Lords who asked me questions that I have not had time to answer. Once again, I express my gratitude to my noble friend for raising this important subject.

Financial Services Bill
	 — 
	Committee (4th Day) (Continued)

Amendment 107 not moved.
	Amendment 107A
	 Moved by Lord Lucas
	107A: Clause 5, page 17, line 5, at end insert-
	"( ) the way in which a financial product or opportunity is drawn to the attention of or otherwise made available to members of the public;
	( ) the ways in which the provider of a financial product or service derives revenue therefrom, and the way that this is disclosed to the purchaser;"

Lord Lucas: My Lords, both segments of the amendment are in effect questions that ask my noble friend where he envisages that the limits of the FCA's powers will lie in dealing with what I perceive to be a couple of current problems. The first part of the amendment is aimed at things such as tropical forestry investment. One finds full-page advertisements in supplements, in particular in the Guardian but doubtless in other places. Presumably, advertisers think that Guardian readers are notable suckers for green investment. The advertisements promise rates of return varying from 18% to 22% per annum over a period of 15 years, and are backed up by a remarkable lack of financial information of any kind-just lots of happy pictures of growing trees and talk about the value of the eventual timber and the many uses for it, about the unspecified rise in the market price of timber, and so on. As far as I can make out, they are complete scams. I investigated one of them in as much detail as I could-which turned out not to be very much, because not much was forthcoming.
	The schemes escape FSA regulation because they are not considered to be collective investment schemes. Although they involve a collection of people pursuing a single investment objective-which is the way the scheme manager makes money-they are not collective in the sense that at their root is individual ownership of a separate plot of trees, land in the UK, wine or another similar separable asset. Therefore, the FSA currently is unable to regulate them.
	Thanks to my noble friend, I had very helpful conversations on this matter with his department, where officials said that the tack that I was originally pursuing might lead to the FCA having all sorts of jurisdiction over arrangements that were essentially private, such as arrangements between consenting adults to do something that might or might not be to their advantage but which the FCA would have no business regulating. Therefore, I attempted to reapply myself to what must be-from the frequency and scale of the advertisements-a large-scale fraud by now, and attach myself to the concept that if something is widely advertised as a consumer investment it is something to which the FCA should be able to pay attention. That is a reasonable way of separating large-scale public frauds from minor arrangements that should be outwith the ambit of the FCA.
	The second part of the amendment deals with the fees or benefits that accrue to managers of investments. I will take as a particular example stock lending fees. Over a long period the FSA has been unable to make managers declare their full benefits from managing funds. The level of fees in this country is far too high anyway. Managers take far too large a proportion of the total return. Noble Lords may have heard the Danes on the radio this morning, threatening to bring low-cost investment management to the UK. Good luck to them; I hope that they will be permitted to do so. However, we ought also to pay attention to our own business, and to making sure that, where a firm says that it charges 1.5%, that is what it will charge, and that it will not indulge in something that is essentially a risky practice and taking all the benefit from it without telling its clients that that is what it is doing.
	There are a number of ways in which the City has derived benefit from the investment management process. One that particularly gets my goat is high-frequency trading, which is robbery by any other name. People get a preferential supply of information about trades and are able to surf the wave of real investors' trades. Every penny that they make is at the expense of real investors-in other words, our pensions. The only reason we tolerate it is that they are doing this to foreigners as well, so we are making more money out of it than we are losing. That is not a healthy way to go on. We should have an open and transparent arrangement for saying how money is earned in the City, and it should be clear to people who are investing exactly what bite the managers and others in the City are taking out of a scheme, so that they can make a reasonable judgment on whether this is the right place to invest or whether they should take their money off to somewhere where they will be allowed a higher share of the total return. I beg to move.

Lord Sassoon: My Lords, I am grateful to my noble friend for bringing up these important matters. As he knows, they are not easily dealt with. I will say a few things about where we are. I will not dwell too much on the specifics of the amendment because, as he said, his intention is to provoke a discussion around some of these topics rather than around the specific drafting.
	The difficulty around these unregulated activities and schemes is that a line must be drawn between regulated and unregulated activities. Around the margin, wherever the line is drawn, there will always be incentives for rogues to exploit the boundary. This may well be what people are doing on some of the schemes to which he referred-I do not want to express a view. The first thing that we need to recognise is that a line has to be drawn between regulated and unregulated activities. For example, we would not want to draw the regulatory net so wide that it would capture investments in a family farming business or investments by family and friends in a small start-up business-the sort of activity that as a Government and as a House we very much encourage.
	Once one accepts that there will be investment schemes that involve a number of people that we do not want to capture in the regulatory net, there will always be a borderline, and I fear that there will also be people who seek to exploit it. It certainly appears that the schemes that my noble friend referred to were structured specifically to avoid being captured in regulations. That means that the regulator cannot act unless either the schemes fall into the regulatory net, or the promoters of the schemes hold themselves out to be regulated. Some fall into the trap of holding themselves out to be authorised and regulated, and then they can be caught. However, the majority do not. I do not think we can simply or easily change the definition of a collective investment scheme in Section 235 of FiSMA to address the point, because either the boundary will shift somewhere else, or we will capture the sorts of legitimate activity that I have referred to.
	What my noble friend Lord Lucas usefully draws attention to is the role of the FSA at present, and that of the FCA in future, which is to think very hard about the preventive consumer education work that is needed to warn the public about the risks of these unauthorised schemes. The fact that my noble friend regularly comes back to them undoubtedly helps to raise that awareness. On the other side, the regulator, whether it is the FSA or the FCA, will also work with the police, trading standards, and the Insolvency Service in this space to do whatever they can. However, I appreciate that unregulated activities will be nigh on impossible to stamp out altogether. I am sorry, but it is no great surprise that I cannot give my noble friend Lord Lucas a complete answer on that.
	On fund management fees, the main point is to give my noble friend reassurance that there is a substantial regime in place through the FSA's rulebook regarding the disclosure of investment management fees. There is a lot of debate and discussion in this area at the moment. The fact that it was discussed on Radio 4 this morning shows that this is becoming an issue which is getting a lot of exposure, which must be a good thing in terms of making investors aware of how much of their capital can disappear through regular compounding of fees. Whether the fee levels in the UK are particularly high or not, compared to other jurisdictions, is clearly not a straightforward matter but is another dimension of this which has been referred to. Ultimately I suggest that these issues are not matters for the Bill beyond the fact that I am sure that the FCA will have all the powers necessary in this area. It is an area in which awareness-raising of the sort which my noble friend is engaged in will focus the regulators to use the powers that they have. I am grateful to him for raising these points, but I ask him to withdraw his amendment.

Lord Lucas: My Lords, of course, I am grateful to my noble friend for his reply, although I do not share his optimism as to the number of people listening. As far as advertisements are concerned I can see I have lost that argument, and we will wait until some crisis arises and events force the Government's hand. There we are. People should have been more careful with their money; they should have known that 20% compound for 15 years was probably not safe.
	So far as investment management is concerned, I think we have been doing some useful things in these last few years in paying real attention to fees, to executive remuneration, and to other ways in which the return to capital is being eroded and the way in which that is costing us all in terms of pensions, support for pensioners and the health of the economy. I hope we continue to make progress. I shall certainly take an interest in the way the FCA asks for disclosure in this area. However, for the moment I thank my noble friend and beg leave to withdraw the amendment.
	Amendment 107A withdrawn.
	Amendment 108
	 Moved by Lord Borrie
	108: Clause 5, page 17, line 7, at end insert-
	"(h) where credit is granted to a consumer, a clear statement, in cash terms, of the total cost of such credit"

Lord Borrie: My Lords, this amendment stands in my name and that of the noble Baroness, Lady Oppenheim-Barnes, whom I am delighted to have supporting it. She was Minister for Consumer Affairs in the early years of the Thatcher Government and is a lady of tremendous knowledge and ability in this field. I will also speak on Amendment 197ZA which, rather surprisingly, is grouped with these other amendments. I will come to that in a moment.
	The Financial Conduct Authority is taking over the responsibilities that are currently with the OFT in dealing with consumer credit. It is important that the Bill maintains and ensures long-term protection for consumers in future consumer credit transactions. One problem is that it is often very difficult for consumers to compare one loan, for example a pay-day loan, with another on a like-for-like basis. Indeed, it is quite difficult for people to know what the costs are of a particular loan that is granted to them. The amendment proposes that the total cost of credit "in cash terms"-I emphasise that-is quoted to the consumer whenever credit terms are granted.
	As I understand it, in pay-day loans there are two elements to charges. One is the core charge or interest charges. The other comprises any other mandatory charges, such as transfer or set-up fees, that may be exacted by the creditor. It is vital to my mind that the cost of credit described includes all unavoidable charges. Those which are not discretionary but mandatory should all be disclosed, and the disclosure should be in cash terms because even the most disadvantaged debtor-even someone with less financial knowledge than others-understands cash terms. The pound sign means something, whereas the percentage sign does not. I know that the noble Baroness, Lady Oppenheim-Barnes, wishes to refer to this matter in a moment.
	As I indicated, I shall speak also to Amendment 197ZA in this group. To my mind, this is almost a separate topic because it deals with plans involving arrangements managed by a debt management company that is negotiating with creditors to reschedule a debtor's repayment of debts. As we know, there are some charitable schemes; for example, that run by the Consumer Credit Counselling Service, whose chairman, my noble friend Lord Stevenson, sits on the Opposition Front Bench. It does a tremendous amount of work and does not exact fees from the debtor, as it is a charitable organisation. Other schemes are financed sometimes by contributions from creditors but, as we have already heard in earlier debates, there are unfortunately huge numbers of debtors owing huge amounts of debt. There is a great need for them to have properly approved and fair debt management schemes and plans to enable them to start afresh, having had their debts rescheduled and paid off.
	There is a practical need for commercially operated schemes to work as well as the Consumer Credit Counselling Service and other schemes to which I have referred do. The need for commercially operated schemes to exist requires that the debtor pays fees. Unfortunately, as has also come out in today's discussions, the OFT has found, in a fairly recent review of 2010, that there have been a great many abuses in the system, including misleading advertising and excessive fees exacted by debt management companies. The OFT has used formal powers to revoke the consumer credit licences of various debt management companies but, to my mind, debt management companies that are run properly and fairly on a commercial basis are needed for debtors and in the consumers' interests.
	The nub of my amendment is that in 2007, under the previous Government, the Tribunals, Courts and Enforcement Act provided for debt management plans to be put in place, as approved by the Lord Chancellor, while in 2009-again, before the change of government-Ministry of Justice lawyers said that any implementation of such powers to approve schemes would require the provision of some form of profit element for this to be effective. These Ministry of Justice lawyers, whose opinion I have seen, thought that the present wording of Section 124 of the 2007 Act was defective because it allowed debt management scheme operators to recover only costs actually incurred; for example, staff and accommodation costs-out-of-pocket expenses, as it were. The 2007 Act does not allow for any specific profit element to be charged, yet surely, as long as the profit element is reasonable and there is nothing unfair in it to the debtor, it ought to be allowed. My amendment allows such a profit element, provided it satisfies the Lord Chancellor before he approves any debt management plan.
	This is a practical and useful amendment to bring the relevant provision into line with what had been intended, as I understand it. Fair debt management plans are needed for the large numbers that, sadly, exist of multiple debtors. Given the level of need for such plans, it is not only not-for-profit organisations that should be allowed to offer debt management solutions. As Ministry of Justice lawyers have said, the problem of the defective drafting of the current law in Section 124 of the 2007 Act can be addressed only by way of an amendment to Section 124 to provide for a profit element. That is what my amendment seeks to do and I trust it will find acceptance with the present Government.

Baroness Oppenheim-Barnes: My Lords, I was very grateful to the noble Lord, Lord Borrie, for tabling this amendment. It is something that I have been passionately concerned about for many years. I am possibly the most innumerate person in your Lordships' House. I say so on an occasion when we had speaking in our earlier debate the noble Lord, Lord May, who is one of the premier mathematicians in the world. I am very glad that he is not here at this moment.
	I have been desperately concerned about the presentation of the costs of credit for any consumer at any level. When the first regulations came out, following the two Consumer Credit Acts, they were a long time coming and were very detailed. They were drafted by someone in a little office at the top of the Department of Trade and Industry and they came down very slowly. Just as I was leaving, down came the regulations for AER and APR. I took one look and said, "No-not possible. I cannot make head nor tail of this." They were too polite to say to me, "Well, most people could, and you can't", so I put it to the test. This afternoon, before coming into the Chamber, I asked 20 different Members of your Lordships' House if they knew what AER or APR stood for. None of them knew-and one of them, who is not here at present, actually moved an amendment.
	When this amendment was coming up I started to look a little more deeply at what had happened since those regulations were passed, after my time there. I came across the information that we have in fact had two draft directives from the EU, which are very precise. The 2008 directive, in order to inform consumers, gives us a basic equation in numerical form. It has a big E, a big C, a little k, a bracket, 1 plus a cross, minus a little 4, equals another big E, with an M over it, and a little l equals 1, then a D1, a bracket, another 1 plus a cross, squared. That is the formula in the EU directive of 2008. There is an explanation. It says it is,
	"where ... X is the APR ... m is the number of the last drawdown, k is the number of a drawdown"-
	thus LSXM-
	"Ck is the amount of drawdown k"-
	I will not go on. There are at least four more lines like that.
	We have been observing that particular formula in this country since that directive but there was a new directive in 2011, which is presumed to help with what has been decided, since 2008, was too difficult a problem for most consumers. It says:
	"The experience gathered by Member States with the implementation of",
	that directive,
	"has shown that the assumptions set out in ... that Directive do not suffice",
	et cetera. They have watered it down somewhat but it is not going to come into force until January 2013, so at the moment we still have the formula that I quoted to your Lordships.
	I really think that my noble friend Lord Sassoon will welcome the opportunity to accept this amendment. It is so simple and prescriptive. It is not general, like any of the other amendments. When you think of all the difficulties that people have with credit these days, even if they are more numerate than I am, then to give them the information in simple figures about how much it will cost them if they pay on time-that must always be made clear-and how much if they do not must be very attractive to any Government, or to anybody concerned with the problems facing consumers in this area today. It is simple and it is cheap. I beg my noble friend to give me some encouragement.

Lord Flight: My Lords, the noble Lord, Lord Borrie, pointed out that this chapter addresses the transfer of the regulation of consumer and small business finance from the Office of Fair Trading to the new FCA. My two amendments, Amendments 118D and 147K, address a specific point: the suggestion that the regulation of claims management companies might be transferred from the Ministry of Justice to the FCA, on the grounds that this area has attracted quite a lot of complaint.
	I also wanted to make the point that, as the Minister will be aware, the industry is slightly concerned that the re-drafting of all the arrangements that presently operate through the CCA regime to come under financial regulation and to end up in an FCA rulebook is a pretty monumental task. It is questionable whether that can all be accomplished with due care to become operative by April 2014. Therefore, might it be wise and/or possible for at least some of the CCA activities to be able to continue beyond April 2014, allowing sufficient time for consultation and for rewriting everything into what is required as a new format? Apart from anything else, there is some £50 billion worth of lending finance to very small businesses, which are substantially one-man operations and represent a few million businesses. It is really quite an important commercial area, and it is important that things do not get through by mistake in the re-drafting that could cause problems.

Lord Stevenson of Balmacara: My Lords, my noble friend Lord Borrie kindly drew the Committee's attention to my position as chair of the Consumer Credit Counselling Service and I declare my interest again. I would also like to thank him very much for his kind remarks about the work of the charity, which does so much for people who have unmanageable debt.
	This is a wide-ranging group of amendments in the sense of issues that have been raised. I will focus on two areas: the claims management area and the debt management space. Claims management companies have increased in number and have come to the attention of the public, and the industries in which they operate, much more in recent years. You have only to turn on the TV or listen to the radio to be bombarded with advertisements from claims management companies. E-mail traffic is also increasing.
	There are apparently more than 3,200 authorised firms operating today. Of course, many in the claims management industry act responsibly. The part of the industry that does not adhere to best practice breaches guidelines on cold calling, text messaging and e-mails. Some will take up-front fees and/or fail to disclose properly the amount of compensation that a consumer will pay if their claim is successful. Through high-pressure sales they will sign up people who have no possibility of making a successful claim on the basis that they can get you thousands of pounds in compensation.
	That sort of activity is prohibited under existing regulation, but unless it is effectively policed it comes to nothing. However, large numbers of those in the industry do not adhere to best practice and a few could even be described as rogues. In a recent debate on this subject in your Lordships' House, the noble Lord, Lord Kennedy, said that the Government need to take a long, hard look at the industry, look at existing provisions and make a number of changes to beef-up existing regulation and ensure that existing provisions are used effectively in an industry that needs effective policing.
	In those circumstances, it is also fair to pick up a point made by the noble Lord, Lord Flight, that the current arrangements with the Ministry of Justice acting as both the sponsoring department and the regulator appear to have broken down. It would be good if the Minister could report on what progress has been made on this list of helpful suggestions.
	My noble friend Lord Borrie drew attention to the debt management sector and in particular to the 2007 Act. There are nothing like as many private sector debt management firms in the UK, as much of the debt advice is undertaken by charitable bodies such as Citizens Advice and my own body the CCCS, which offer a free service of high quality. Collectively, commercial firms administer some 200,000 debt management plans and about 50,000 IVAs. The trade body, DEMSA, estimates that this is some 40% of all the debt management plans currently in operation.
	DEMSA states that its goal is to promote best practice and protect the interests of clients and the lenders to which they owe money, but in its review of the sector in 2010 already referred to, the OFT found instances of non-compliance among DEMSA member firms, albeit DEMSA members received a clean bill of health compared to the rest of the sector, and action was taken on a number of firms.
	On the publication of its report on debt management in March 2012, the chair of the BIS Select Committee, Adrian Bailey MP, said:
	"During these difficult economic times, increasing numbers of people up and down the country-not least some of the most vulnerable members of our society-are relying on the provision of consumer debt management services and payday loans to make ends meet. And yet this industry remains opaque and poorly regulated. Despite a Government consultation that ended almost a year ago little has been done to remedy the situation. The Government must take swift and decisive action to prevent firms from abusing the needs of such a vulnerable customer base".
	The committee's main recommendations are worth repeating. The Government must work to phase out up-front fees: the provision of guidance on this point by the OFT is inadequate. The Government should introduce the necessary regulations to ensure companies publish the cost of their debt advice and their outcomes if an agreement cannot be reached during discussions with the industry. The Government should establish effective auditing of debt management companies' client accounts. The report concludes that greater transparency in the commercial debt advice market would benefit consumers hugely and that voluntary codes of practice are highly unlikely to achieve this aim. The Government must be prepared to regulate if consumers are to receive the protection and the level of information they require.
	It seems clear from all this that we have reached the stage in these two sectors whereby strong and effective regulation is required. We also think it is time that the Government should take advantage of the opportunity of the Financial Services Bill to make the new regulatory bodies responsible for this currently unregulated part of the market which affects so many vulnerable customers.

Lord Sassoon: My Lords, this group contains an interesting mix of loosely related amendments, if they are related at all. I shall respond first to the amendments concerning claims management firms.
	Amendments 118D and 147K seek to bring claims management companies under the regulation of the FCA. Clearly the regulation of claims management companies must be effective, but there are two reasons why a transfer of CMC regulation to the FCA is not the right course of action. First, the best way to improve regulation of CMCs is to make changes to the current regime, rather than by transferring responsibility for regulation to another body. My noble friend has already questioned whether the transfer of consumer credit responsibilities by April 2014 is achievable. I should say, in parenthesis, that I believe it is achievable, although I appreciate that there is a lot to do. There will be a consultation early in 2013 about how it will operate. However, we are talking here about making another transfer of responsibilities, which I do not believe is necessary or the best way to achieve the objective.
	The Ministry of Justice, as we have heard, is the body responsible for regulating the activities of businesses providing claims management services. It carried out a review last year of claims management regulation which concluded that fundamental reform was not needed but identified a number of areas where improvements could be made. A shift in responsibilities now would not address the underlying problems in the conduct of claims management companies and would detract from the concrete steps that the Government are taking to address those problems.

Lord McFall of Alcluith: The Minister said that the Ministry of Justice undertook a review that concluded that fundamental reform was not needed. As I mentioned earlier, two months ago I chaired a meeting between the banks and consumer groups on PPI, where £8 billion is at stake. Both groups were very concerned about some rogue claims management companies and asked for an urgent meeting with the Ministry of Justice. Indeed, I hope that they will get a meeting with Ken Clarke as a result. Therefore, on the ground the situation is much different from the one the Minister describes, with the Ministry of Justice saying that fundamental reform is not needed.

Lord Sassoon: My Lords, I have said, however, that improvements are needed, as was identified in the review. If any impetus is needed in setting up the meeting which the noble Lord seeks, I shall relay the message to my colleagues in the Ministry of Justice to make sure that it happens if it is not already fixed. Yes, there are problems to fix. They include-very much to the point of the noble Lord, Lord McFall-the establishment by the claims management regulator of a specialist team to handle CMCs that pursue claims for mis-sold PPI. Not for the first time, the noble Lord is one step ahead of me, but that is one of the specific items that need to be addressed to improve the situation.
	Since last November, the team has conducted more than 60 audits of claims management companies to identify any evidence of lack of compliance with the rules. That team is working with the Financial Ombudsman Service, the FSA and the Financial Services Compensation Scheme, as well as with major banks, to help identify non-compliant businesses, gather evidence and help improve the claims process for consumers. It is recognised that there is a problem, and the authorities are working in a joined-up way to deal with it. More broadly, the Government have reviewed the conduct rules which all CMCs must comply with as a condition of their licence. The Ministry of Justice will shortly launch a consultation on amending the conduct rules to tighten up on certain practices and provide further clarity. I firmly believe that improvement is needed and that the improvements to regulation of CMCs currently being proposed by the Ministry of Justice are the right course of action. Transferring responsibility for regulation to another body would not be.
	Secondly, the FCA will be a conduct-of-business regulator for financial services, but claims management companies do not provide a financial service. It is true that many of those companies are active in the financial services sphere, particularly in relation to matters of PPI, but their business is not limited to claims in relation to financial services. It is therefore not clear why it would be logical for the FCA to take on this responsibility.
	I turn to Amendment 108, concerning the regulation of consumer credit. The amendment would require the FCA, in considering what degree of protection is appropriate for consumers, to have regard to,
	"where credit is granted to a consumer, a clear statement, in cash terms, of the total cost of such credit".
	I am conscious that, with an amendment in the names of the noble Lord, Lord Borrie, and my noble friend Lady Oppenheim-Barnes, I am facing a formidable duo with vastly more experience in these matters than I have. The Government clearly recognise that there are difficulties with APR-which, for the avoidance of doubt, refers to the annual percentage rate-representing the cost of short-term loans such as pay-day loans, but let me explain to the Committee what we are doing.
	My colleagues in the Department for Business, Innovation and Skills have been working with the short-term loan industry to ensure that borrowers receive clear information about the cost of a loan in cash terms per £100 in addition to its APR. The four main trade associations, which represent over 90% of the short-term loan industry, have agreed to update their codes of practice to reflect this and made other commitments to help consumers, and that will be done by 25 July. I believe that this is very significant progress. Having said that, I would argue that the APR serves a useful purpose in enabling consumers to compare the cost of different credit products, so that will remain in place in addition to the new cash cost number that will be given.
	As I think my noble friend recognises, it is important to note that the consumer credit directive is a maximum harmonising directive and one that requires the cost of credit to be expressed as an APR. It does allow for other pricing information to be given, such as the cost of the loan in cash terms, but this must be less prominent than the APR.
	I very much agree with the sentiment of Amendment 108 but, as I have explained, in making this new agreement with the industry, we are going as far as we can to add the cash cost as far as it is permitted by the European directive.

Lord Borrie: The people who will subscribe to the new code are those who are more likely to conform to the requirements of the Government, the ministry or whatever. It is the other companies, which may not subscribe to these requirements, that one is bound to be more worried about. Those are the ones that will not provide the cost of credit in cash terms.

Lord Sassoon: My Lords, I believe that a step that takes us from no agreement in this area to a situation where over 90% of the industry has agreed through the code of practice to reflect the cash cost, and for that agreement to be in effect from 25 July, is a huge step forward. Of course, because it is done via a code of practice and a voluntary agreement, BIS has been able to do it relatively quickly. I would suggest that having it 90% done, and done quickly-which one hopes will drive fringe players out of the market if they do not buy into the codes of practice-is the right way, and an energetic and effective way, for my colleagues to address the situation. We should wait and see how that operates, but I believe that it will be effective. It is a major advance and is compatible with the difficult constraints of the European directive.

Baroness Oppenheim-Barnes: Could the motive behind the European directive possibly be their desire not to see anything quoted in euros?

Lord Sassoon: I am not going to question the motives of the directive, except to note that in this area, as in others, we are not free agents.
	I turn to Amendment 118E, which seeks to insert into the list of "regulated financial services", referred to in the FCA's objectives,
	"debt management companies or debt adjustment services companies".
	There is no explicit reference to debt management or debt adjusting on the face of the Bill. However, I would like to reassure-I am grasping for whose name is attached to this amendment-the noble Lord, Lord Eatwell, but also the noble Lord, Lord Stevenson of Balmacara, that Clause 6 enables all consumer credit activities currently regulated by the Office of Fair Trading to be transferred to the FCA, including debt management. So I hope the noble Lord will accept my assurance that no further provision in this area is necessary, because it is indeed picked up by the definition of Clause 6.
	I should turn next to Amendment 197ZA, before I address some government amendments in the group. It concerns the question of the statutory debt management scheme and is also in the name of the noble Lord, Lord Borrie. It would amend enabling powers in the Tribunals, Courts and Enforcement Act 2007 for a statutory debt management scheme, if implemented, to apply to commercial as well as not-for-profit organisations.
	As I said, the Government are currently working to deliver non-legislative alternatives with the debt management industry, as we have with the fee-charging pay-day loan industry. We want to give sufficient time and focus to that work to develop a voluntary code and to take account of the wider changes to the regulation of the debt management sector enabled by the Bill, which will lead to more proactive and intrusive regulation for the sector, before we look to a statutory scheme. If the Government were to resort to a statutory scheme, that would be the appropriate point to revisit the provisions in the Tribunals, Courts and Enforcement Act 2007 to ensure that they meet the policy needs, rather than addressing it at this stage through the Bill before we have bottomed out the ability of a non-legislative solution to have effect.
	I shall speak briefly to the government amendments in the group, Amendments 142 and 194 to 196. Noble Lords may be aware that the Government brought forward a number of amendments at Report in another place to support the transfer of consumer credit regulation from the OFT to the FCA. Among those amendments was provision enabling local weights and measures authorities-trading standards-to continue to provide services to the national consumer credit regulator and to take action against those who provide credit on an unregulated basis following the transfer to the FCA. The amendments complete the group by creating parallel provisions for the Department of Enterprise, Trade and Investment in Northern Ireland, which plays the same role in Northern Ireland as does trading standards in England and Wales.
	With those various assurances abut this rather disparate group of amendments, I ask the noble Lord, Lord Borrie, to consider withdrawing his amendment.

Lord Borrie: Yes, of course I will withdraw my amendment, but I must express disappointment with the disinclination of the Minister to take the one further step that would enable a change to be 100%, rather than whatever percentage of good boys will conform to a code of practice.

Lord Bilimoria: My Lords, I accept that there is an element of contradiction in advocating, on the one hand, that we go carefully on transferring consumer credit but, on the other, that we transfer CMCs. I just make two points on consumer credit. I argued strongly for its transfer at the time of the FSMA; I am pleased to see it happening; I think that that is correct. CMCs are basically a financial service. They are lodging claims for people, whatever the cause. I hope that, in due course, it may be transferred to the FCA.
	Amendment 108 withdrawn.
	Amendments 108A to 108D not moved.
	Amendment 108E had been withdrawn from the Marshalled List.
	Amendments 109 to 111 not moved.
	Amendment 111A
	 Moved by Lord Tunnicliffe
	111A: Clause 5, page 17, line 23, after "exchange" insert "or market maker"

Lord Tunnicliffe: My Lords, Amendment 111A is in the names of my noble friends Lord Eatwell and Lady Hayter, and I shall also speak to Amendments 112, 115 and 116; I shall do so briefly.
	Competition has an important role to play in the financial services industry. Indeed, as the party leader, my right honourable friend Ed Miliband, has been arguing since his conference speech in the autumn of 2011, if we are to rebuild our economy so that it works in the interests of the many and not the few, we need root and branch reform of our banks. Having greater competition and more players in the market is an important element of the process. Competition, along with choice, transparency, integrity and access, is an integral part of the market working well. On this side of the House we welcome, therefore, the inclusion of a competition objective in the remit of the Financial Conduct Authority.
	However, we must continue to emphasise the question "What is competition for?". It is for the consumer. In a sense, I am disappointed that the noble and learned Lord, Lord Fraser of Carmyllie, did not move his amendment. First, it would have been an opportunity for me to say just how much I disagreed with it. Secondly, it would have been an opportunity for the Minister to say how much he agreed with me. I hope, therefore, that he will emphasise the importance of this clause to the interests of the consumer. The competition objective in the Bill is built around the consumer, so I support the amendment in the name of my noble friend Lord McFall, which requires the FCA to have regard to the factors contained in new Section 1A.
	I shall turn to Amendment 111A, and I am very pleased that the noble Lord, Lord Lucas, asked a probing amendment, proving that it is respectable to do so. This is but a probing amendment, in order to understand new Section 1E(1), which states that:
	"The competition objective is: promoting effective competition in the interests of consumers in the markets".
	Perhaps it is trying to say "all financial markets"; if the Minister said that was what it meant, that would be great. Clearly it covers a great chunk of financial markets with new subsection (1)(a), "regulated financial services". However, it needs to add new paragraph (b), because-and I did not know this, until I looked it up this morning-certain recognised investment exchanges are not, apparently, regulated financial markets, because they get an exemption under Section 285(2).
	We have added "or market maker" because market makers seem to be taking in the role of investment exchange in some areas. There is a move-over. If those market makers are already covered by new paragraph (a) -"regulated financial services"-I would be content with that assurance. If they are not, I would be grateful if the Minister could sketch out what exemptions there are from this new paragraph. I beg to move.

Lord McFall of Alcluith: My Lords, I would like to address briefly a number of the points in Amendments 112, 115 and 116. It is just a simple change: rather than have "may have regard", put "must have regard"-to, for example,
	"the needs of different consumers who use or may use those services, including their need for information that enables them to make informed choices".
	It is this concept of informed choice that is very important. I well remember when we had the scandal of endowment mortgages; we looked at that issue in the other place. The consumers would be presented with two types of mortgages, one which the salesperson said had a small pile of cash at the end of the day, and the other a repayment mortgage. Believe it or not, the one which had a small pile of cash was cheaper than the repayment mortgage. It defied logic, but everybody piled into it, not least because the salespersons were getting 80% of the first year's contributions from individuals. When we looked at this, the industry said, "This was way in the past". It was depending on a high level of inflation for its returns. If inflation is 8% then you are going to get your cash pile, but if it is only 2% or 3% then you are in trouble. We are still living with the consequences of those endowment mortgages, with people making claims for them. That was not an informed choice, and it is why it is important to be more definitive in the Bill and insist that the FSA must look at that issue, as well as at,
	"the ease with which consumers who obtain those services can change the person from whom they obtain them".
	We all remember another case where people going into retail shops, whether an Army and Navy store, Marks and Spencer or wherever, were being sold credit cards in store. They had to sign up there and then in the store for those credit cards and there was no redress. We ensured in the other place that that practice was stopped and that people had an opportunity to reflect on the card and decide whether or not they wanted it.
	If you make a plea to people in industry, that does not seem to work, so we need to be much more firm. It is with that in mind that I ask that we make this simple change from "may" to "must".

Lord Sharkey: I support Amendment 112 in the name of the noble Lord, Lord McFall. As the Bill stands, the use of "may" instead of "must", when listing matters to have regard to in considering the effectiveness of competition in the markets under discussion, seems to have two problems. The first is that it makes the competition objective less strong than the consumer protection objective, in which the FCA is given a list of things that it must have regard to. In the competition objective, the FCA is given a list of things that it may have regard to. Why is this? Why is the consumer protection objective definite about what the FCA must have regard to, while the competition objective is not? Surely it would be more sensible to have these objectives on an equal footing and in both cases supply the FCA with a list of things that it must have regard to.
	The second problem is that the use of "may", regarding what the FCA takes into account in considering the effectiveness of competition, seems to render the whole clause without much force or substantive meaning. Why list the factors that the FCA may have regard to if it actually does not have to do so? Either the factors listed are important to consider or they are not. If they are important, surely the FCA must consider them. If they are not important and can be disregarded by the FCA, as the Bill seems to provide, why are they there at all? I hope that the Minister may see the virtue of "must" and might agree to the noble Lord's amendment.

Lord Sassoon: My Lords, I am infinitely flexible; it depends how long we go on this evening but I can see one or two amendments coming up on which I can be more accommodating than I will be on this one.
	I shall start with perhaps the easiest part: the questions from the noble Lord, Lord Tunnicliffe, around Amendment 111A. I am delighted to see the noble Lord joining the fray. We have now had four players on the Front Bench from the Opposition; I wish that we had such depth of reserves on our side. However, I will battle on.
	Amendment 111A seeks to bring the activities of market makers into the scope of the FCA's competition objective. I reassure the noble Lord and the Committee that the activities of market makers are already very much covered by the objective. Put very simply, to operate as a market maker firms will have to obtain permission to deal in investments as principal, and that is a regulated activity. That means that such firms are performing a regulated activity or a regulated service, and noble Lords will see that new Section 1A(1)(e) clearly states that markets for regulated financial services fall within the scope of the FCA's objective, so the FCA can indeed shine its regulatory light on market makers as on any other part of the sector. For completeness and to clarify, as far as recognised investment exchanges or RIEs are concerned, they can be exempt from the general prohibition under Section 285(2) of FiSMA, but even their activities are brought within the scope of the competition objective by virtue of subsection (1)(b) of new Section 1E in the Bill. I hope that that deals with that.
	Turning to Amendment 112, competition can mean many things to many people. To indicate what the Government might want the FCA to look at in deciding how to advance its competition objective, subsection (2) of new Section 1E sets out a number of matters to which the FCA may have regard in assessing the effectiveness of competition in a given market. It is an indicative and, importantly, a non-exhaustive list. The FCA cannot dodge or duck out of its overall competition objective. Had we not put the non-exhaustive list of examples down there we might not be expressing the concern that we have. There would be the simple competition objective and that would be that.
	Given the list, let me explain a bit more why there is danger in changing "may" to "must". That would mean that the FCA would always have to consider all the issues set out in new subsection (2). The FCA should not necessarily have regard to all of that list when looking at particular competition questions. There could be unintended consequences.
	If the FCA wishes to take action to promote switching, the consideration of barriers to entry will not be as important as the ease with which consumers can transition between providers and how that is affected by the structures of the market or behaviours of incumbents. To enable the FCA to generate the outcomes that we want under the competition objective it is important that the list is expressed in the terms that it is. This does not make the basic objective of the FCA weaker in this area. It just means that we need to give it a degree of discretion to be able to target the particular issues that they are looking at at any one time.
	That addresses the amendments that are being spoken to and I hope that the noble Lord, Lord McFall of Alcluith, will consider not pressing his amendment.

Lord Tunnicliffe: My Lords, I am sorry that the Minister did not rise to my invitation to wax a little lyrical over his commitment to consumer interest, but at this late hour I do not now invite him to. I am sorry too that he was not able to see the attraction of "must". I have laboured on such ventures and I know the ferocity with which one's brief has said that one must never move from "may" to "must". Many of us would have been more satisfied if the Minister had accepted "must", and we will have to see whether my noble friend Lord McFall brings this back later for further consideration.
	I thank the Minister for his straightforward assurances on Amendment 111A and I beg leave to withdraw.
	Amendment 111A withdrawn.
	Amendments 112 to 113 not moved.
	Amendment 114
	 Moved by Lord Sharkey
	114: Clause 5, page 17, line 34, after "market," insert-
	"( ) developments in the markets for unregulated financial services that are in the interests of consumers and businesses,
	( ) the desirability of establishing a new authorisation regime for direct financial platform providers to protect consumers and providers,"

Lord Sharkey: I shall speak also to Amendment 119. Both amendments are to do with financial innovation and particularly with peer-to-peer lending. They add to the factors the FCA may have regard to-or must have regard to, if the Government eventually accept Amendment 112-when considering the effectiveness of competition. The first amendment would require the FCA to have regard to developments in markets for unregulated financial services that are in the interests of consumers and businesses and to have regard to the desirability of establishing a new authorisation regime for direct financial platform providers to protect consumers and providers.
	That means, essentially, that the FCA would have to look carefully at new, unregulated services and would have explicitly to weigh the merits of regulating peer-to-peer lending organisations. Peer-to-peer lending has already passed the $1 billion mark in the United States, where it is regulated, and it is growing very fast in the United Kingdom. Many commentators see peer-to-peer lending as a direct way of dealing with the banks' failure to lend to individuals and to small businesses. Andy Haldane of the Bank of England has even suggested that these non-traditional lenders could eventually replace banks.
	The Government acknowledge the potential of this new lending model and have made £100 million of seed money available. However, this new model of peer-to-peer lending is not covered by existing financial services legislation and that leaves it exposed to very serious dangers. This new industry, unregulated, is extremely vulnerable to rogue players entering the market. All it takes is one rogue player, one big scandal and a lot of losses for ordinary lenders for the model to be discredited and to fail. That would be a very undesirable outcome. We desperately need new and innovative financial services to provide real competition for existing banks and to fund those areas of commercial life, particularly SMEs and start-ups, that the banks are so obviously failing to fund. It is not as though innovative, real-world consumer-orientated financial services are in good supply. In fact, it could be argued that peer-to-peer lending and crowd funding are the only significant financial innovations that are around at the moment and likely to benefit the real economy.
	At Second Reading, the Minister said in response to suggestions that peer-to-peer lending be taken into regulation:
	"The Government do not think that statutory regulation is appropriate at this point. The sector is very small and such regulation would be a barrier to new entrants and innovation".-[Official Report, 11/6/12; col. 1261.]
	The industry does not agree with that. The leaders of the industry are acutely alive to the danger to their business model presented by a rogue operator. They would welcome regulatory protection for consumers and providers. This protection need not be onerous. Indeed, any regulatory regime should be judged for suitability not only on the protections it provides but on how little of a barrier to entry and innovation by proper operators it offers. In fact, this is one of those occasions when the market, particularly for crowd funding into SMEs, requires regulation in order to expand. We need IFAs to distribute these products if we are to enlarge the market, and IFAs absolutely require regulation before they will consider doing that. We also need regulation that will allow these products to be located inside tax-efficient wrappers.
	This is one of those asymmetrical cases where no regulation risks the complete destruction of the sector and some regulation carries only a small risk of discouragement, if any, and the strong probability of encouraging wider distribution and uptake. At Second Reading, the Minister also said,
	"this is a matter that we will keep under review".-[Official Report, 11/6/12; col. 1261.]
	That is precisely what these amendments would require the FCA to do. It is important that we have that commitment in the Bill and I hope that the Minister will recognise that the balance of risk and reward here argues in favour of these amendments.
	Before I close, I would like to ask the Minister for clarification. It may be that the Bill already brings peer-to-peer lending under regulation. Clause 6(3) amends paragraph 23 of Schedule 2 to FSMA 2000. This paragraph brought into the scope of regulation rights under any contract under which one person provides credit to another if the obligation of the borrower to repay is secured on land. The present Bill amends paragraph 23 by removing any reference to secured on land and substituting the phrase,
	"Rights under any contract under which one person provides another with credit".
	Does this change in practice bring peer-to-peer lending under regulation, as it might appear? If it does not, as is probable, despite the apparent clarity of language, then I hope the Minister can give sympathetic consideration to the amendments. I beg to move.

Lord Flight: My Lords, I believe that the FSA has been looking in some detail at how to regulate platforms, and has been doing so for quite a while because it is difficult territory. It is either about to or just has come forward with its proposals.

Lord Lucas: My Lords, I very much support what the noble Lord, Lord Sharkey, has said in this area. My Amendment 117B in this group picks up a couple of aspects of it. The first aspect is,
	"the role of regulation in enabling innovative business models to compete with established businesses".
	By regulating this area so heavily we have created a structure where it can be extremely difficult for people to be innovative. The noble Lord, Lord Sharkey, drew an obvious example of that when he talked about the regulations that independent financial advisers have to work under. If IFAs are allowed to talk about ordinary money products but not allowed to talk about peer-to-peer lending products then, by not regulating them and not bringing them under the umbrella of regulation, we are making it difficult for these new entrants to compete. We are creating a barrier to innovation.
	This particular innovation is not just fluff or amusement. It promises, if it gets going in a substantial way, to alleviate some of the pressure on the national financial system: you get away from borrowing short and lending long, and away from the £85,000 guarantee, and you put those risks back on the lender. It is also a structure that may prove to be extremely useful in local lending in areas where the lenders can identify that the borrowers are part, in some way or another, of the same community and can, in that way, develop substitutions for pay-day lending and other more expensive and onerous arrangements. So there are real opportunities here to improve the financial system as a whole. The FCA really ought to have regard to the way in which regulation produces barriers for entry in the way that the noble Lord, Lord Sharkey, has described.
	But it is not just without government that these barriers appear; they are also within government. One of the principal barriers to the expansion of peer-to-peer lending is the tax arrangements, that you cannot offset your losses on bad debts against the interest you earn on the good ones. Banks can but peer-to-peer lenders cannot. Among the reasons why the Treasury, which is refusing to regulate, will not extend tax concessions is that these businesses are not regulated. So the Treasury itself is causing the problem that is crippling the development of this business.
	It is all very well to run a business which is restricted to borrowers of the highest quality, which is effectively what it is at the moment. All the peer-to-peer lenders that I am aware of have pretty low bad debt ratios. That is because they do not lend to risky borrowers, because there is no offset for the losses. The net return to their investors if they did start making loans with, say, an average default rate of 5% would start to become extremely low because there would be no relief for the 5% of losses and they would be paying full income tax on their 12% of income. It starts to make very little sense, so none of the peer-to-peer lenders have gone into that territory. But lending to areas of the community where there is a risk of default, such as young businesses, is exactly the sort of area where this Government are trying to push the banks with so little success, and where businesses such as the Funding Circle would love to go if the Government would make it possible.
	As I say, the reasons for not going there are entirely due to the Treasury, and the reasons why the Treasury cannot grant the concessions are also down to the Treasury. It really should be open to the FCA to try to break that circle and persuade the Treasury to face one direction at a time and to promote something which is in everyone's interests, particularly the Treasury's. Nor would I just confine our thinking to peer-to-peer lending, which is what is there at the moment. Other peer-to-peer ideas are around. Peer-to-peer investment in start-ups already qualifies. There is an FSA-registered business called Seedrs, in which I take an interest. There are proposals for peer-to-peer investment management. That goes back to an earlier amendment in terms of trying to reduce the return that stays in the pockets of investment managers by disintermediating that business.
	There are certainly proposals for doing this in the field of annuities. The opportunity is obvious: old people want income and young people want capital. If you can produce a mechanism where the two can exchange that, you are looking at something where you can cut out a very large amount of cost in the middle, where you could produce for people who are trying to settle their pension fund annuity at the moment a decent rate on which to do it, and where you could provide for young people who need capital a decent rate at which to have it.
	The difficulty with doing that is the forest of regulation we have put in place to tie down the existing old-style businesses in that area. The opportunity for and the benefits of innovation in that area seem obvious. So we must have an FCA which understands not just not-regulating but also how regulating constructively will enable businesses to compete where, if they are left unregulated, they may not even be able to exist.

Lord McFall of Alcluith: My Lords, I should like to add my support. My name is not on the amendment. A number of months ago I spoke to Giles Andrew, of Zopa, about peer-to-peer lending, and I was very taken by what he said. I think back to the MPC and the American whose name escapes me but who is just departing from the MPC to take up a post at the Peterson Institute in America and his comments about a spare tyre. We lack a spare tyre in the UK in terms of our banking. Whether it is a Labour Government or this Government, none of us has solved the problem of getting lending out. We have a lot to learn in that area. Our top banks are responsible for 450% to 500% of our GDP. We will not make progress on that. This initiative should be looked at. Nothing fundamental will change tonight but it is good that it is on the agenda and I am delighted to be associated with it.

Baroness Kramer: My Lords, I am in full agreement with the three previous speakers, who have covered virtually all the territory-which at this hour I will not repeat. However, I should like to add one point. The only argument that I have received from Ministers outlining why this area should not be regulated is that regulation is potentially too heavy-handed and will prevent the sort of growth of a new, young industry. I think that in this House we have rather more faith in the regulator, which has begun to move forward and understand that appropriate and proportionate regulation is a standard that can be achieved. I say that in order to pick up the entity to which the noble Lord, Lord Lucas, referred. Unlike the peer-to-peer lenders which fall outside the current regulatory framework, Seedrs had to be regulated because it is marketing equity investments. It falls into the regulated arena and has had to seek authorisation.
	I quote from the blog of the chief executive:
	"The authorisation process was long and sometimes painful, but we feel that it was an absolute necessity in order to satisfy both the letter and the spirit of the law. The FSA scrutinised every aspect of our business model and operations, and after over a year of iterative questions and answers, they gave us the go-ahead.
	We are proud to be the first platform of our kind to receive FSA authorisation-or, to our knowledge, approval by a major financial regulator anywhere in the world. But more importantly, we are convinced that it was the right thing to do to go down this route, and we now look forward to launching the Seedrs platform as a fully authorised business".
	It is using the authorisation as a marketing mechanism. Having talked to the regulator and then followed through with Seedrs publications, it is clear that both sides have been satisfied with this process. Rather than being too onerous, there is a sense that regulation has been appropriate and that the authorisation has matched the circumstances. If we can achieve that with the equity platform, surely we can achieve that with the lending platform.

The Lord Bishop of Durham: My Lords, my name is on this amendment and the noble Lords, Lord Lucas and Lord Sharkey, have said virtually everything I want to say. I will simply add that in the areas where the access to finance is most wanting, the creation of safe space-through regulation of the kind that the noble Lords described-is what will enable competition to start to break the stranglehold of some of our larger lenders, who neither lend in these areas themselves nor are willing to make space for others to lend in them. That is a fundamental reason why there is still a shortage of finance.
	The Bank of England's north-east agent in her report, which was published this morning, talked about inadequate supplies of finance to the SME sector in the north-east of England despite the valiant and determined efforts of the Government, through guarantee schemes, to make that possible-and those schemes are not providing finance at anything under 10%. The banks are simply layering charge upon charge upon charge. We need regulation to permit competition. It will not stop competition. I hope the Minister will see the advantage of this as it has been so eloquently put by previous speakers.

Lord Tunnicliffe: My Lords, these Benches do not have a particular view on Amendment 114. If the noble Lord, Lord Sharkey, is to press this further at a later stage in light of the response from the Minister, we will have to think through whether we will support it. It clearly has consensus support in the Chamber tonight so we will look at it very carefully. In his response, can the Minister give a view on how wide or narrow he sees his amendments, particularly the extent to which they might have a general utility in, for want of a better term, future-proofing the legislation?
	Turning to Amendment 117B, we all want to support innovation. Once again we do not have a view on this amendment, but if it is pressed at a further stage, what we always have to look at with innovation and competition is proportionality. Yes, innovation creates competition, new ideas and opportunities, but it may put the customer at risk. Proportionality has to be there to balance new opportunities with proper protection.

Lord Sassoon: My Lords, in addressing Amendments 114, 119 and 117B, the Committee has drawn attention to some very topical and important issues. I cannot now remember why Adam Posen of the MPC came in; I think it was Adam Posen who the noble Lord, Lord McFall of Alcluith, referred to. This is an area that is rightly being widely discussed. The Government agree that innovative finance models such as peer-to-peer lending are important. Some £100 million of the £1.2 billion that will be invested through the Business Finance Partnership will be invested through other non-traditional lending channels, to reach smaller businesses such as peer-to-peer platforms, so the Government are putting their money in this space.
	We agree that if these types of operations are to be regulated, the regulatory approach to be applied should be proportionate. However, the Government do not believe that the case for regulation has yet been made. As I said when I responded at Second Reading, this is a new and growing sector and we do not want to inhibit its growth. Nor do we want to put up barriers to new entry by protecting the incumbents. Furthermore, we would expect the costs of regulation to be passed on to consumers.
	I reassure noble Lords that the Treasury is alive to the needs of the sector. My colleague the Financial Secretary has met some key players in this emerging market. While the Government do not think that statutory regulation is appropriate at this point, we will keep this under review. I say advisedly that the Treasury will keep it under review because the decision is for the Treasury and not for the FCA when it comes into operation.
	I am happy to confirm to the Committee-this is important in relation to some of my noble friend's points-that the changes being made as part of the Bill under Clause 6 would make it legally possible to bring direct platforms into scope. I stress again that we have made no decision to regulate and do not believe that we should. However, unlike the position under FiSMA, we now have an enabling provision in new Section 1J whereby we can amend the objectives to bring peer-to-peer platforms, for example, into the scope of regulation. My noble friend is right to draw attention to Clause 6 as an enabling clause.
	I turn to Amendment 117B. Where innovative finance models are regulated, the FCA will of course take a proportionate approach, as I made clear when the Committee discussed social investment last week. Where they are not regulated, there is no role for the FCA, and there can also be no role for the FCA to facilitate the work of other government departments. I regret to say to my noble friend that the decisions about tax treatment, for example, will remain a policy matter for the Chancellor, as will the decision about the scope of regulation in this area. Of course, the Chancellor keeps all tax policy matters under review in the context of his Budget.
	It is perhaps worth saying that there has never been a generalised income tax relief for losses on investments, which is part of what is being discussed in this area. HMRC has always sought to classify dealings in financial products by individuals as investment rather than trade, and a targeted income tax relief specifically for loans made through p-to-p platforms would be open to particular risk of avoidance, would encourage other, similar investments to request similar tax relief and might prove challengeable under EU state aid rules. Therefore, I do not want to get my noble friend's hopes up in this area, although he was of course right to draw our attention to the issue.
	Finally, I cannot support Amendment 119 because only if and when the Government decide that direct finance platforms are to be regulated will we insert relevant definitions into FiSMA. As I said, the provision is there in new Section 1J to update the definitions. I hope I have provided my noble friend with at least some assurance that the Bill takes forward the legal framework so that if a decision is made to bring p-to-p platforms into the scope of regulation, it could be achieved. Therefore, I ask him to withdraw his amendment.

Lord Lucas: My Lords, is my noble friend agreeing with me that the principal reason why there is no ability to offset tax for peer-to-peer lending activities is that they are not regulated and therefore there is scope for abuse?

Lord Sassoon: No, my Lords, I am not saying that. There are plenty of different tax treatments for all sorts of regulated and unregulated activities. I see the issues as separate. However, I have indicated a couple of areas in which changing the tax treatment would be difficult and would run counter to some of the broader accepted principles by which we run the tax system. But I would not link the two things explicitly together.

Lord Sharkey: There was a question in the debate about the scope of my suggestion. The amendments were drafted deliberately widely so that they create a "may" or a "must" for the FCA when it considers competition so that it looks at new developments in the market that may be in the interest of consumers.
	I have been encouraged by a lot of the debate. There is an almost universal consensus that regulation might be important and might be a very good thing. I think I am perhaps a little encouraged by what the Minister has said, but I will read Hansard carefully tomorrow to check that I am still encouraged. There is one issue here that needs stressing, which is the matter of urgency. It takes only one rogue operator to go bang in a very serious and public way to sink this whole area. The Government should perhaps be a little more alive to that particular problem and the risk of that happening. Having said that, and looking at the clock, I beg leave to withdraw.
	Amendment 114 withdrawn.
	Amendments 115 and 116 not moved.
	House resumed.

House adjourned at 10.07 pm.